Noncompete Litigation Strategy

One advantage employers often have when it comes to non-compete disputes is time; Employers may win the war without ever doing battle simply by running out the clock. This point was a central issue in a case pending before the Michigan Court of Appeals that our law firm recently argued.

Specifically, on October 4, 2017, I argued a case before the Michigan Court of Appeals about a noncompete dispute. The underlying lawsuit (filed in Circuit Court in Detroit) was somewhat unusual in that the plaintiff had sued to challenge the enforceability of the non-compete. The challenge was both to whether it was enforceable and as applied to the particular position with the new employer.

The non-compete agreement was between the individual and one company. A subsidiary company that was not a party to the contract sought to enforce it the restrictions. This subsidiary, however, was not a party or identified – directly or indirectly – in the agreement.

The case was aggressively positioned to be decided on motions. And the trial judge had expressed agreement that the new position likely did not violate the non-compete agreement; it involved a private-sector employer and a university. While this case was pending, the prospective employer initially agreed to keep the position open. However, business needs eventually intervened and the employment offer was withdrawn.

In this regard, the defendant (the prior employer/subsidiary) argued that because the job offer that sparked the suit was rescinded the case was now moot — or close to being moot. So in essence, the employer argued that it didn’t matter whether the non-compete was enforceable or, if so, whether it would have been violated by the new position because the job offer was withdrawn. Unfortunately, the trial judge agreed. And since the enforceability of the noncompete formed the foundation of the remaining claims, the judge also dismissed those claims.

The Court of Appeals

On appeal, we made several arguments for reversal and remand. One argument was that because of other provisions found in non-compete agreement – namely an invention/intellectual property assignment – the rights, or lack thereof, of the parties continued beyond the expiration of the non-compete agreement. We also argued there was no factual or legal basis for the subsidiary – a non-party to the agreement – to threaten legal action against the prospective employer for hiring my client. So this interference was not permissible under Michigan law.

Normally, one can get a feel for the outcome based on the questions and statements from the panel. But not this time; the panel gave no indication on which way their decision was leaning and only a few questions to both sides were asked.

Time is on the Employer’s Side 

Regardless of the outcome, this appeal illustrates the significant advantage employers have over individuals with non-compete enforcement. Often sending correspondence (commonly called a cease and desist letter) to a prospective employer advising them the person about to be hired is under a non-compete restriction is enough to sabotage the employment offer. Or, an employer can just run out the clock until the offer is withdrawn.

On this point, if I could wave my magic legislative wand, I would add a bad-faith provision to Michigan’s non-compete statute. Some protections are needed to guard against frivolous or overreaching threats of litigation by employers.

As a side note, Judge Henry Saad was one judge on my panel for this appeal. This would be his last day hearing appeals before retiring at the end of next month. Judge Saad has been a Court of Appeals judge since 1994. He was also my ethics professor in law school. As a judge, one thing you could count on from Judge Saad was preparation. He was always prepared with cases he decided. That preparation will be missed.

For more information about Michigan non-compete law, contact attorney Jason Shinn. Mr. Shinn routinely represents parties involved in non-compete matters. This experience includes drafting, negotiating, and representing parties trying to enforce non-compete restrictions or accused of breaching such agreements.