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Examining the Enforceability of Non-Compete Agreements

We've all been there. You've gone through the interview process and been extended an offer of employment. You go through a stack of paperwork with the HR representative, signing your signature on or placing your initials on page after page.

One of those pages in the stack was likely a non-compete agreement. It's understandable that you didn't give it much thought at the time. After all, why would you be thinking about your exit in the midst of your excitement over a new career opportunity?

Non-Compete.jpgUnfortunately, when the time comes to take your career in a new direction, you must consider the potential consequences of any non-compete agreement you signed in the afterglow of your career achievement. If you are an employer you must ask yourself: "will the non-compete stand?"

"Reasonable" is the key word

Contracts form the foundation for successful relationships between employees and employers in the same way they do for relationships between businesses. In Michigan, a non-compete agreement is only enforceable in the courts if it is reasonable.

What does "reasonable" mean in this context? Courts will examine four primary factors in determining whether a non-compete balances the rights of employees and employers in a reasonable manner:

  • The type of business, industry, or position named in the agreement
  • The geographical location specified in the agreement
  • The duration of the non-compete term the employee must abide by
  • The business interest the agreement seeks to protect

For example, if your company manufactures cleaning chemicals, it would likely be considered reasonable to prevent your top chemist from moving to a competitor in the next year, taking their formulaic knowledge about your products to their new company. On the other hand, a court is unlikely to uphold an agreement that bars such an employee from ever being employed by another household product manufacturer or ever working elsewhere in the State of Michigan.

In fast food terms, it would not be considered reasonable for McDonald's to attempt to prevent an entry-level employee from jumping ship to Burger King or Wendy's. Preparing food is much too broad an area to have a tangible impact on McDonald's business interests. However, it may be reasonable for McDonald's to prevent the head of their test kitchen from moving to another food company for a period of months or years to protect their trade secrets.

If you are an employee seeking to challenge the terms of a non-compete or an employer hoping to enforce such terms, the help of an experienced business and employment law attorney can make all the difference. 

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