Companies commonly rely on non-compete restrictions to protect their competitive business interests. But if such post-employment restrictions are not properly drafted, those agreements may not be enforceable if challenged in court.
Overview of Non-compete Restrictions
Briefly, non-competition restrictions prohibit an employee from going to work for a competitor of a former employer. Such post-employment restrictions are for a defined period following the end of the employee’s employment.
However, non-competition restrictions are often viewed as restraints of trade, meaning they are often carefully and critically scrutinized by Michigan courts. In analyzing the enforceability of noncompetition provisions, a judge will (or should) balance the legitimate interests of the employer in protecting its property against the public policy prohibiting restraints of trade.
Therefore, an employee’s promise not to compete is likely to be valid only if the court concludes, after balancing the hardships, which the employer’s legitimate interests outweigh the hardship to the employee and possible injury to the public.
A Non-compete Agreement’s Langauge Matters
Against the backdrop of these competing issues, often the biggest enforcement issue comes down to how the judge interprets it and whether the judge will ultimately enforce it.
So when it comes whether a judge will enforce a non-compete restriction, what sort of considerations come into play? Each noncompete dispute will often turn on its unique facts and circumstances, but last week at an early status conference in a noncompete dispute in which our law firm was the attorney of record, we took the position that it came down to the future versus present tense of the word “competing.”
This distinction was critical because our client, the former employee, was going to work in a university setting, conducting research and development (R&D). After attempts to negotiate an amendment to the noncompete restriction failed, our law firm filed a lawsuit for declaratory relief and related claims challenging the enforceability of the employer’s noncompete dispute.
While the R&D may eventually result in new products or product innovations in the future, we argued that the non-compete restrictions only read in the “present tense” not “future.” We also argued that the definition of a “competitive enterprise” found in the non-compete agreement did not extend to a non-profit institution like a university. Last week at a status conference, the judge’s questions directed to opposing counsel seemed to signal the judge’s concerns as to whether the non-compete agreement was enforceable based on these arguments.
The noncompete lawsuit described above is early in the litigation process. And whether the above legal assertions eventually result in a favorable ruling by way of a dispositive motion or a trial remains to be seen. But having indications that your judge minimally appreciates whether the disputed noncompete agreement is enforceable has indeed set the stage for the case going forward.
However, this example should serve as an important reminder for business owners. Specifically, if your company intends to protect business advantages and competitive interests through non-compete restrictions, those restrictions need to be carefully drafted to provide reasonably, but broad protection. Otherwise, your company may find out too late that the non-compete agreement it intended to rely upon is not going to be enforced.
For more information about Michigan non-compete law, as well as enforcing or challenging a noncompete agreement, contact Michigan attorney Jason Shinn. Since 2001, he has focused on representing companies and individuals when it comes to drafting, interpreting, negotiating, and litigating non-compete agreements.