“Sticking feathers up your butt, does not make you a chicken.“
Tyler Durden, Fight Club
Under Michigan law, one required element for having an enforceable non-compete agreement is a “reasonable competitive business interest.” But, like the chicken quote, business owners can’t expect to just stick the phrase “reasonable competitive business interest” into an employee agreement and, without more, expect to have an enforceable non-compete agreement.
A recent example illustrates this point: I was defense counsel in defending against allegations that a former employee breached the employer’s non-compete agreement and the successor employer had tortiously interfered with the non-compete agreement by hiring the former employee. A major defense was that the plaintiff did not have a protectable reasonable competitive business interest.
Specifically, the plaintiff claimed that certain internal forms and agreements it used in the business were trade secrets, confidential, and proprietary to the plaintiff. Many of these forms were provided to customers and other third parties without any restrictions.
Additionally, during the course of the litigation, we discovered that a company affiliated with the plaintiff and unrelated to the defendants had actually posted on the Internet many of the very forms at issue in the litigation. In other words, how could there be a “reasonable competitive business interest” to protect if the information was already freely available?
This is certainly the Cliff-note version of what was actually complex litigation. But the end result speaks for itself: Plaintiff’s lawsuit, which had asked for $860,000 plus early on in the case, ended up settling for $8,500. And as part of the settlement, the former employee’s non-compete was voided in its entirety.
There are many issues that need to be addressed when it comes to drafting an effective and enforceable non-compete agreement. But without a reasonable competitive business interest, an employer is going to have problems enforcing a non-compete agreement.
In addressing what makes for a protectable competitive business interest, examples include detailed customer list, confidential information, trade secrets, and business goodwill. The key, however, is to tailor your company’s non-compete agreement to the business interests that allow the company to be competitive.
For more information about drafting and enforcing non-compete agreements, as well as defending against claims non-compete violations, contact attorney Jason Shinn.
Mr. Shinn routinely works with employers to draft enforceable non-compete agreements and since 2001 he has represented employers and individuals in non-compete disputes