A proposed Michigan House Bill was recently introduced that would significantly limit the use of noncompete agreements (sometimes called covenants not to compete) in Michigan. Such agreements often restrict individuals from working for a competitor or other post-employment activities.
Specifically, State Represntative Peter Lucido (R) introduced HB 4198 on February 12, 2015, which has since been referred to the Committee on Commerce and Trade.
Under current Michigan law, noncompete restrictions between an employer and employee may be enforceable if certain conditions are met. Current Michigan law (MCL 445.774a) provides as follows:
An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.
However, proposed HB 4198 would outright void a noncompete restriction between an employer and employee. Specifically, the proposed bill reads:
… any term in an agreement an employer obtains from an employee, contract laborer, or other individual that prohibits or limits the individual from engaging in employment is void.
HB 4198 would allow for noncompete restrictions in certain limited circumstances involving the sale of a business. More specifically, a purchaser of a business may obtain noncompete restrictions from the seller, principles, or officers of the business if it is in writing, entered into as a result of the sale, and at the time the sale takes place. Similar to current Michigan noncompete law, the noncompete restriction would still need to be reasonable as to its duration, geographical area, and the type of employment or line of business.
It is important to remember that this is only a proposed bill and one that has been referred to the Committee on Commerce and Trade (committees can often be legislative black holes). It is also likely to be a controversial bill given the impact it would have on businesses and employees. And let’s face it, anyone who has driven any distance on a Michigan road knows Michigan politicians have a difficult time passing legislation on issues with broad support, let alone contentious issues.
We will, however, continue to monitor this legislation. In the meantime, if you have any questions about Michigan noncompete law, contact attorney Jason Shinn. He represents both employers and employees in drafting and reviewing noncompete agreements, as well as litigating noncompete disputes.