Is a Non-Compete Agreement Enforceable in Michigan?
A business owner’s biggest investment is often his or her employees. Not only does an employer invest time in an employee through training, salary, and benefits, he or she also invests a level of trust in the worker. To protect the business, an employer may consider implementing a non-compete agreement in some cases.
How are non-compete agreements used in Michigan?
A non-compete agreement is a legal document that protects Michigan business owners by preventing employees from working for competing businesses for the time stated in the agreement.
Business owners may use non-compete agreements in Michigan to protect trade secrets, retain top talent, and preventing employees from sharing confidential information, starting a competing business, soliciting customers, and more.
Do non-competes hold up in Michigan courts?
A non-compete agreement that is properly drafted by an attorney who specializes in business or employment law will most likely hold up in court, and an agreement that balances the rights of the employer with the rights of his or her workers is best.
An agreement that is not sound in one area may be entirely thrown out of court, so it is important business owners consult with legal counsel before drafting non-compete contracts. Michigan law states that the agreement must include the following reasonable terms:
Duration – Typically one year is a reasonable amount of time, but the duration varies depending ono the employer and job position.
Geographical areas – The geographic area listed in the non-compete agreement varies depending upon the type and size of the business. Large businesses may utilize a larger geographical area in their non-compete agreements, while most small local businesses should consider their business’s size and scope.
Type of business – The agreement should identify in which industry the employee is forbidden from working.
What are reasonable business interests?
Business owners should not utilize non-compete agreements as tools to prevent employees from leaving the company, but rather as a mechanism to protect the reasonable business interests of the business. Business interests may include confidential client information, training, customer relationships, and more.
Possible changes to Michigan law
House Bill 4874, which, if signed into law, would create restrictions for utilizing non-compete agreements. Under the bill, an employer could not obtain a non-compete agreement from an employee unless the employer had completed all of the following:
- Provided applicants for the position with written notice of the non-compete agreement requirement.
- Disclosed the terms of the non-compete agreement in writing before hiring the employee.
- Posted the act or a summary of its requirements in a conspicuous place at the worksite where it is accessible to employees.
Also, the bill would prohibit employers from requesting or obtaining non-compete agreements from certain low-wage employees. Michigan employers who utilize non-compete agreements should keep an eye on the bill to determine if it is enacted into law.
The business attorneys at O’Reilly Rancilio review, negotiate, and draft non-compete, employment, non-solicitation, confidentiality, consulting, and independent contractor agreements. Our attorneys also consult with clients and prepare employee handbooks and other documents related to employment policies and employment or independent contractor agreements. For more information, please call 586-726-1000 or visit our website at www.orlaw.com.