Many businesses use non-compete agreements to protect confidential information, client relationships, and investments in employee training. These agreements are intended to prevent former employees from using sensitive information or key relationships to compete directly against the company.
At the same time, Michigan law limits how far an employer can go. Courts weigh a company’s interest in protecting its business against an individual’s right to work and compete. A non-compete that is too broad in scope, geography, or duration may not be enforced. Drafting or enforcing one requires careful attention to these legal standards. Many companies rely on outside general counsel Detroit to manage employment agreements and enforce restrictive covenants as part of their broader legal strategy.
Demorest Law Firm, PLLC, advises businesses on creating, reviewing, and enforcing non-compete agreements. Contact the firm for a free initial case evaluation with a Royal Oak employment lawyer. The attorneys at our firm proudly serve clients in Wayne, Oakland, Macomb, Livingston, Washtenaw, and Monroe Counties, as well as businesses throughout Michigan.
A non-compete agreement protects a company’s business interests by precluding another party from engaging in employment or a line of business that would unreasonably impair the company’s legitimate interests. In effect, non-competes prohibit parties from taking jobs or starting businesses that compete with a current or former employer’s line(s) of business. However, companies cannot use non-compete agreements to stifle legitimate economic competition. Instead, a company must tailor the scope of a non-compete strictly to protect its legitimate interests. Non-compete agreements are often developed alongside broader contract drafting and review strategies to ensure enforceability. The scope of a non-compete agreement involves several aspects, including:
In Michigan, the Michigan Antitrust Reform Act governs the enforceability of non-compete agreements in the employment context. Under the Act, an employer may enter a non-compete agreement with an employee that protects the employer’s reasonable competitive business interests and prohibits the employee from entering employment or a line of business during and after the employee’s employment with the protected employer, if the agreement has a reasonable duration, geographical area, and type of employment or line of business. Michigan law expressly permits courts to limit any unreasonable scope of a non-compete agreement to render it reasonable under the circumstances.
What constitutes a “reasonable” scope for a non-compete agreement depends on the specifics of the employer-employee relationship. Some of the factors that may affect the reasonableness of a non-compete include:
In many cases, courts may find a six-month or one-year non-compete agreement reasonable. In contrast, a court may find a longer non-compete term reasonable only under limited circumstances. Furthermore, a court may find the scope of restricted activities in a non-compete agreement unreasonable when it includes types of work that the employee never performed for the employer.
Additionally, non-compete agreements must meet the basic requirements applicable to all contracts to become enforceable, including mutual assent to enter the agreement and consideration (an exchange of something of value) for the agreement. A court may decline to enforce a non-compete that an employee did not knowingly or voluntarily sign, or if the agreement lacks consideration; continued employment might not serve as proper consideration for a non-compete, although a job offer, promotion, or additional compensation usually can.
Some of the most frequent issues that arise in negotiating or enforcing non-compete agreements include:
Parties may also enter into non-compete agreements in the context of a business purchase and sale, with the seller agreeing to abide by a non-compete in favor of the buyer. Non-competes negotiated as part of the purchase and sale of a business can have a broader scope while remaining reasonable enough for a court to enforce, unlike non-compete agreements between an employer and an employee.
The law allows broader scopes for non-compete agreements created as part of the sale of a business because the buyer has a legitimate interest in preventing the party from whom they just purchased a business from immediately competing against it. The buyer also has legitimate business interests in precluding the seller from using confidential or proprietary information of the business they sell to compete against the buyer. These agreements are often structured in coordination with a mergers and acquisitions attorney during business sales and ownership transfers.
When you suspect that an employee or party whose business your company purchased may have breached their non-compete agreement with your company, you can take prompt action to protect your legal options, such as reviewing the agreement, gathering evidence of competitive activities, and sending a cease-and-desist letter. Additionally, you should consult the experienced Royal Oak lawyers at Demorest Law Firm, PLLC, about your company’s legal options and the next steps you can take to enforce your rights. Your non-compete may include an alternative dispute resolution clause requiring mediation or arbitration of claims.
Alternatively, your company may pursue litigation to obtain injunctive relief, such as a temporary or permanent injunction prohibiting further breaches of the non-compete. Your company may also have a claim for compensation for losses caused by the breach of the non-compete, such as lost sales, as well as legal claims against another business that induced your former employee to breach their non-compete. Working with an experienced Detroit business attorney can help ensure your company protects its competitive position.
Hiring experienced counsel can help you craft a non-compete agreement that can best protect your business’s legitimate interests. Let a contracts attorney in Royal Oak from Demorest Law Firm, PLLC, help your company negotiate or enforce a non-compete agreement because of:
Creating an effective and enforceable non-compete agreement requires knowledgeable legal counsel to tailor an agreement to your company’s interests. Contact Demorest Law Firm, PLLC, today for a free, confidential consultation with a Royal Oak attorney to learn how we can help you in legal matters involving non-competes. Our law office serves clients throughout Michigan, including in Wayne, Oakland, Macomb, Livingston, Washtenaw, and Monroe counties.
