Michigan Non-Compete Agreements

Employers may want to have employees sign non-compete agreements in an effort to protect their trade secrets and other proprietary information. Michigan non-compete agreements can be an excellent way to protect the business. However, there are a few things that should be taken into consideration when drafting these agreements so that unnecessary time is not spent in court fighting unenforceable terms.

In Michigan, non-compete agreements are governed by Section 4a of the Michigan Antitrust Reform Act. Accordingly, non-compete agreement are going to be judged on reasonableness in three areas:

1. Duration

Duration simply describes the length of time that the restriction is in effect.  Each case will be looked at individually, but generally speaking, the more valuable an employee is to an organization, the more reasonable an increase in duration will be.  Non-compete periods of one year are often enforced.

2. Geographic Scope

The agreement must also be reasonable with respect to the geographic area that the employer is limiting the employee in procuring new employment. The area immediately surrounding the place of employment is generally considered reasonable.  When expanding beyond that immediate area, it will be up to the employer to show that widening the geographic scope is necessary to protect the employer’s competitiveness in the market.

3. The Type of Employment or Line of Business

The courts will also look to see how the employer has limited the employee’s ability to find work in similar fields. The employer should avoid language that is over-reaching or too vague.  The employee should still be able to procure employment with their current skill set.

The employer’s trade secrets or confidential business information may also be protected through a confidentiality agreement.  The requirements to enforce a confidentiality agreement are not as restrictive as those for a non-compete agreement.

What is important to remember is that in every instance the facts will be examined on a case-by-case basis. If one portion of a non-compete agreement is deemed unenforceable, the rest of the agreement may still be enforced. It is important that both employers and employees seek legal counsel before drafting or signing a non-compete agreement.  An employer needs to make sure that the terms of the agreement are reasonable. Likewise, an employee needs to make sure that they fully understand how their future employment prospects will be limited by signing a non-compete agreement.