Are Employee Non-Compete Agreements Enforceable in Michigan?

By: Harvey I. Wax

Employers commonly condition the hire of a new employee on their willingness to agree in writing that after leaving the job, he or she will not engage in another job or a business that is competitive with the employer’s business. While such a commitment may appear to someone who is unemployed to be no big deal, that’s normally not the case. Being subject to such an agreement after one’s employment ends, is likely to create unexpected concerns for both employee and employer. In light of today’s tight job market, a terminated employee, with limited job skills and experience, may suddenly find himself with few, if any, employment opportunities. Because of a number of legal limitations on a former employer’s ability to enforce a non-compete agreement, employers attempting to do so may find themselves entrenched in costly and unpredictable litigation.

Pear, Sperling, Eggan & Daniels, P.C. were recently successful in defending an employee against the demand of his former employer that he quit his new job, because it the employer claimed he was in violation of a non-compete agreement. The fact that our client had quit the first job to avoid engaging in illegal activities – which the employer insisted he do –was a major reason the employer eventually backed off of its demand that our client must quit his new job.    

While employee non-compete agreements are authorized by a Michigan statute, that statute and related laws impose a number of limitations on their enforceability. Examples of such limitations on enforceability of non-compete agreements are:

• The restricted geographical area stated in the agreement must be “reasonable” in relation to the area in which the employer does business.
• The duration of the non-compete period must also be “reasonable”.
• The nature of the work activity that is forbidden must be “reasonable” in its relation to the nature of the employer’s business.
• Whether a non-compete agreement is “reasonable” as to any of these three factors is within the discretion of a court to decide, when and if such question is raised by an employer or employee. 
• A court has discretion to refuse to enforce an agreement if it concludes from available evidence that it would be unfair (inequitable) to either the employee or employer to do so.  Common examples of such unfairness are:

1.    Employer fires employee without good cause or for a false reason, enabling itself to benefit from enforcement of the non-compete.

2.    The employee is terminated for engaging in whistleblowing or refusing the employer’s directive to engage in an illegal activity.

3.    The employee resigns “involuntarily” in order to avoid having to engage in illegal conduct or to escape a “hostile work place environment”.

• A non-compete agreement which is first presented to an employee for signature after he has been hired, i.e. during the course of his employment, is enforceable only if the employee is offered and willingly agrees to accept additional compensation or other “consideration” of value in exchange for his signature. 

If you have questions concerning non-compete agreements or other employment or labor law issues please contact the experienced employment law attorneys in Ann Arbor, Harvey Wax, Jerry Lax or Jeremy Kennedy.  We can be contacted at 734-665-4441 or hwax@psedlaw.com.