The Department of Labor (DOL) announced guidance on March 12, 2020, for how States can pay unemployment insurance benefits to employees who miss work because of the coronavirus. Here is the DOL’s COVID-19 Bulletin.

The Federal DOL generally oversees unemployment insurance benefits systems. But States actually handle applications and payments. In so doing, States also generally determine eligibility requirements for such benefits.

Because of this overlap between Federal and State agencies, the DOL’s guidance provides an important roadmap for States to extend unemployment benefits eligibility to employees affected by the coronavirus, including in these three scenarios:

  • employees who miss work because of a medical quarantine;
  • employees who choose not to work to avoid exposure (self-quarantine) or to care for a family member with the virus;
  • employees laid off because their employers cease or limit operations in response to the pandemic.

The value of the DOL’s guidance will be magnified if the House Democrats get enacted their “Families First Coronavirus Response Act.” This Act (H.R. 6201), is a package of measures that would:

  • Provide as much as $1 billion for emergency transfers to States to process unemployment insurance claims and pay benefits;
  • It would allow for an additional 13 weeks of benefits, beyond the standard 26-week period;
  • Establish free coronavirus testing; and
  • Provides paid leave.

On this last point, providing paid leave is especially important because most states do not require this and the DOL expressly states unemployment benefits are “not intended to be used as paid sick leave.” See Section 3(b) of the DOL COVID-19 Bulletin. Thus, the paid leave would be important to minimize the spread of the virus by giving employees a real choice between taking time off if they may have been exposed to the virus or missing a desperately needed paycheck.

For continued updates about the COVID-19 coronavirus and responding to it, please subscribe to this publication. For specific questions, use this link to contact Michigan attorney Jason Shinn.


The U.S. District Court for the Eastern District of Michigan announced on March 11, 2020, visitor restrictions for entering its five courthouses to prevent the spread of the virus.

The full restrictions are available here. These restrictions were issued in response to Governor Whitmer’s State of Emergency, which we discussed here.

In sum, the current restrictions require visitors to tell Security Officers if they meet certain criteria, including whether they:

  • Have traveled to China, South Korea, Italy, or Iran within the last 14 days;
  • Come into contact with someone who has been to these countries;
  • Traveled domestically within the U.S. where COVID-19 has sustained widespread community transmission;
  • Come into contact with anyone who has been diagnosed with COVID-19;
  • Have been asked to self-quarantine by any medical professionals; and
  • Have a fever, cough, or shortness of breath.

There are various numbers in the bulletin to call if you were supposed to appear for jury duty or otherwise required to appear at one of the courthouses in the Eastern District but cannot because of the restrictions.

Also, it will be important to review this notice as domestic community transmission continues to increase or countries are added to the list.

Thoughts on the Restrictions

These restrictions make sense but are undermined by the lack of testing available for the virus.  Specifically, three of the six criteria depend upon or relate to having the virus, having symptoms of the virus, or being exposed to someone with the virus. Medical tests would provide much-needed fact-based assessment rather than the guess-work or assumptions visitors and court staff must use to assess entry into the courthouse.

Our goal in the coming days and weeks is to provide continued updates and recommendations for maintaining a safe workplace and meeting employment law obligations in response to the COVID-19 coronavirus. For continued updates on this and other employment law matters, please subscribe to this publication. For specific questions, use this link to contact Michigan attorney Jason Shinn.

Coronavirus On March 10, 2020, two Michigan residents tested positive for coronavirus (COVID-19). One case as an adult female from Oakland County who had recently traveled internationally. The other is an adult male from Wayne County who recently traveled within the United States.

In response, Gov. Gretchen Whitmer declared a state of emergency. Gov. Witmer and her coronavirus task force will be meeting today to finalize the State’s response to the virus. Before these confirmed cases, Governor Whitmer had created for taskforces focused on education, Health and Human Services, the economy and workforce, and state government in preparation for a potential COVID-19 outbreak.

Jay Greene of Crain’s Detroit reported that Michigan officials have advised businesses, schools, and universities that they should be making plans for mitigating the spread of the virus, which will likely continue in Michigan. As a reminder, COVID-19 symptoms may appear between two days or as long as 14 days after exposure to the virus. The symptoms include fever, cough, and shortness of breath.

Government Coronavirus Information and Resources

In addition to Michigan Government’s response to COVID-19, various federal government agencies have provided guidance specific to employers and workers for responding and dealing with the coronavirus:

  • The United States Department of Labor provided this statement and resource page for employers and workers about the coronavirus.
  • The Centers For Disease Control and Prevention (CDC) provided this coronavirus resource page for healthcare professionals.
  • The CDC also provided this resource page providing guidance for businesses and
    Employers about responding to the coronavirus outbreak. Importantly, the CDC has told employers they should encourage sick employers to stay home.

What Should Your Business Do Right Now

As someone who has been following the coronavirus outbreak, one frustration has been the conflicting and, sometimes, dishonest representation of the viral outbreak.

To minimize such confusion, we are advising our business clients to designate a point person who will keep abreast of coronavirus developments. This person should follow reputable and vetted sources, in addition to monitoring official state and federal governmental resources. The focus should be staying on top of updates and best practices for mitigating the spread of the coronavirus, as well as minimizing the risk to your company. With the right understanding, you will then be able to orientate your company down a path for successfully responding to this epidemic.

Building on this last point, your company’s point person should regularly communicate with management and employees regarding these issues, and follow up with outside legal counsel as may be needed to address specific compliance or legal issues relating to the virus.

As it increasingly becomes apparent that the coronavirus will continue to adversely affect workers and businesses with no near-term solutions, you should be prepared to confront a range of legal and business operations challenges. Our goal in the coming days and weeks is to provide continued updates and recommendations for maintaining a safe workplace and meeting employment law obligations. For continued updates on this and other employment law matters, please subscribe to this publication. For specific questions, use this link to contact Michigan attorney Jason Shinn.

Partial Response to Sexual Harassment is no solutionThe results of a sexual harassment internal investigation by the Michigan Senate’s human resource office concluded that Michigan State Senator Pete Lucido likely engaged in “inappropriate workplace behavior.” That is troubling. But, equally troubling is the response from the top Senate Leader.

The sexual harassment investigation and report.

The sexual harassment investigation was launched after a reporter complained about Senator Lucido making inappropriate comments about her. Specifically, reporter Allison Donahue explained while interviewing Lucido in front of about 30 teenage boys from an all-boys Catholic high school the Senator made inappropriate comments about her:

You should hang around! You could have a lot of fun with these boys, or they could have a lot of fun with you.

The teenagers then burst into laughter with the Senator.

This was not a locker room exchange; it happened outside the Michigan Senate chamber. And even if you are willing to accept a locker-room style excuse from your elected officials, this was an elected politician making what can be considered a gang-rape joke for an audience of teenage boys about a female reporter asking him questions about his involvement with a violent, anti-Gov. Gretchen Whitmer Facebook group.

Peter Lucido sexual harasser
Pete Lucido (center, screaming) at a Donald Trump campaign rally on November 6, 2016.  One hopes Mr. Lucido was not this enthusiastic in response to Mr. Trump’s infamous Access Hollywood video. Photo by Chip Somodevilla/Getty Images.

After Ms. Donahue came forward, two other women also came forward with sexual harassment complaints against the Senator. After investigating these complaints, the Senate Business Office concluded there was a “likelihood that Senator Lucido acted in the manner described by his accusers.”

Don’t Say Your Company Takes Sexual Harassment Seriously; Show it.

In response, Michigan Senate Majority Leader Mike Shirkey stripped Senator Lucido of only one of his three chairmanships; He lost his chairmanship from the Advice and Consent Committee, but Crain’s Detroit (by Chad Livengood) reported that Lucido could keep his “chairmanship of the powerful Senate Judiciary and Public Safety Committee.”

In a statement, Mr. Shirkey said: “We take accusations of inappropriate behavior in the workplace very seriously …” Really?

If Mr. Shirkey’s believed the report’s conclusions, if he believed Mr. Lucido harassed three women, believed such harassment warranted discipline, then why the partial response e.g., taking away only one of three chairmanships? Perhaps there is some political sliding-scale: three sexually harassed women equal losing one of three chairmanships?

Employees Deserve Meaningful Responses to Sexual Harassment; Juries Expect it.

Change the facts ever so slightly. Instead of an elected politician making jokes about the “fun” 30 teenage boys could have with a female reporter, imagine it was your senior manager, or your CFO, or a vice-president. And imagine that person telling a female employee her male co-workers could have a lot of fun with her in the conference room. Would you take away the offender’s job title, maybe remove some job responsibilities, call it a day, declare lesson-learned, and move on?

Sexual harassment is a form of discrimination prohibited under Title VII of the Civil Rights Act of 1964. The #MeToo movement and abhorrent conduct by executives and other high-profile incidents of sexual harassment have given heightened attention to such harassment. And this environment has raised the stakes for employers to get out in front of this issue and to responsibly address sexual harassment concerns.

But it is not enough for an organization – at least outside of Michigan politics – to just point to workplace anti-sexual harassment policies and give statements that violations are not acceptable and call it a day.

Your company’s response to sexual harassment should fit the circumstances. However, the response should demonstrate your company’s commitment to creating a safe, professional, harassment-free workplace. And when a complaint is investigated and substantiated, half (or with Senator Lucido losing one of three chairmanships) 1/3 efforts to discipline harassers will often fall woefully short of the meaningful response employees deserve and juries expect. This is evident from the number of high-profile verdicts and CEO terminations over the last year.

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article, or complying with Michigan or federal employment laws or litigating claims under both. Since 2001, Mr. Shinn has represented companies and individuals in employment discrimination claims under federal and Michigan employment laws.

McDonald's Noncompete AgreementMcDonald’s recently announced it terminated its chief executive, Steve Easterbrook, for having a consensual relationship with an employee. This termination presents a buffet of employment law and HR issues upon which one could devour. However, I want to focus on the non-compete restriction that Mr. Easterbrook ultimately agreed to upon ending his employment.

The Background for the Termination

For background purposes, Mr. Easterbrook was terminated after having a relationship with an employee. This relationship violated McDonald’s company policy, which prohibits employees with “a direct or indirect reporting relationship” from “dating or having a sexual relationship.” Such policies, sometimes called nonfraternization policies, have become standard for employers.

There are many perspectives on this firing. The New York Times, for example, reports that Mr. Easterbrook was not the first (nor will he be the last) executive to be removed for violating this sort of policy. And, Forbes provides three good reasons for why this termination made sense. See “Fair Or Foul? McDonald’s CEO Fired For Love.” And NPR analyzed the significant pay gap between compensation at the top and the bottom of the corporate ladder.

McDonald’s Non-compete Severance Agreement

But I found the non-compete restriction interesting and relevant to issues my clients regularly address. Specifically, how broadly can a non-compete restriction be drafted before it becomes unenforceable?

Here, McDonald’s post-employment restriction puts Mr. Easterbrook on the employment “side-lines” for two years. He is prohibited from working anywhere in the world for a “Competitive Company.” So what is a “Competitive Company?” The obvious suspects are listed in the agreement, such as Burger King, Jack-in-the-Box, Wendy’s, Arby’s, and Taco Bell.

But McDonald’s also expanded the definition of a “Competitive Company” to nonobvious fast-food restaurants like Domino’s Pizza, Papa John’s, Pizza Hut, Jamba Juice, Long John Silver’s, and Panera. Here is the full non-compete restriction:

Competitive Companies” shall mean any company in the restaurant industry (whether informal eating-out or ready-to-eat) that competes with the business of McDonald’s, including any business in which McDonald’s engaged during the term of your employment and any business that McDonald’s was actively considering conducting as of your Termination Date. Examples of Competitive Companies include, but are not limited to: Arby’s, BoJangle’s, Burger King/Hungry Jacks, Caffè Nero, Checker’s, Chick-fil-A, Chipotle, Costa, Culver’s, Denny’s, Domino’s Pizza, Dunkin’ Brands, Five Guys, Greggs, Hardee’s, In-N-Out Burger, Jack-in-the-Box, Jamba Juice, Long John Silver’s Quick Service Restaurant Holdings (and all of its brands and subsidiaries), Panera Bread, Papa John’s, Popeye’s Chicken, Potbelly, Q-doba, Quiznos, Seven-Eleven, Sonic, Starbucks, Subway, Tim Horton’s, WaWa, Wendy’s, YUM Brands, Inc. (including, but not limited to, Taco Bell, Pizza Hut, Kentucky Fried Chicken and all of YUM Brands, Inc.’s subsidiaries) and their respective organizations, partnerships, ventures, sister companies, franchisees, affiliates or any organization in which they have an interest and that are involved in the restaurant industry (whether informal eating-out or ready-to-eat) anywhere in the world, or that otherwise compete with McDonald’s. You agree to consult with McDonald’s General Counsel, Jerry Krulewitch, or his successor, for clarification as to whether or not McDonald’s views a prospective employer, consulting client or other business relationship you may have or have had in the restaurant industry (whether informal eating-out or ready-to-eat) not listed above as a Competitive Company.

So is this sort of post-employment restriction enforceable? For Mr. Easterbrook, probably. He was the CEO of the company, and he agreed to receive substantial compensation in exchange for signing the agreement. CBS reports his severance payout may be worth $70 million and could increase if McDonald’s meets certain financial targets over the next three years.

But would a similar restriction be enforceable for your average manager or employee getting little to no severance pay? That is a different story.  An employer would probably have difficulty in convincing a judge such a broad restriction is necessary to protect a reasonable competitive interest. And such an interest is the touchstone for non-compete enforceability.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article or want to discuss the enforceability of your non-compete agreement. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.

Grand Rapids Business CourtOn October 23, 2019, the Michigan Supreme Court announced that the Hon. Terence J. Ackert has been assigned to the Kent County Business Court docket. Judge Ackert will join Judge Christopher Yates who also presides over this docket. Prior to this assignment, Judge Ackert presided over cases in the Family Division of the Circuit Court.

Judge Ackert is a graduate of the University of Michigan and the University of Toledo College of Law. He became a judge on September 1, 2015.  Before taking the bench, he worked in private practice from 1984 through 2015. As a practicing attorney, Judge Ackert mostly serving as business counsel and trial attorney for closely held and family-owned businesses.

The Michigan Business Court Experiment Continues

The Michigan Business Court docket began in October 17, 2012, under Public Act 333. Under this Act, Michigan circuit courts with three or more judges were required to create a “specialized business court docket.”  Any case that meets the definition of a “business” or “commercial” dispute must be placed on the business docket.

The reasoning behind Michigan’s Business Courts is that it provides a case management structure intended to facilitate “more timely, effective, and predictable resolution of complex business cases.”

What does the assignment of a New Business Court Judge Mean?

Here are three points to consider about this business court assignment.

First, Judge Ackert will be in good company with Judge Yates. Our firm routinely represents clients in business disputes throughout Michigan. And with this experience, Judge Yates is at the top of the list when it comes to fair and effective Business Court Judges.

Third, for some time, Judge Yates had been the only business court judge for a busy Grand Rapids docket. Somehow he and his staff did not let this workload adversely affect the progress of cases. But the addition of Judge Ackert is probably very appreciated when it comes to moving cases toward resolution.

Second, Judge Ackert’s professional experience before taking the bench as legal counsel in a range of business matters – both transactional and litigation – is appreciated. Personally, I find judges who have experience in the “trenches” tend to be more effective when it comes to understanding the interplay of litigation and substantive law. Hopefully Judge Ackert will continue to prove this judicial theory to be true.

Michigan unemploymentThe Unemployment Insurance Agency (UIA) is implementing changes intended to make it easier and more convenient to obtain unemployment benefits. On August 22, 2019, the UIA will update its customer contact center using the leading phone technology to provide greater efficiency and more contact options. For both employers and individuals using the UIA’s system, this (probably) is good news.

More About the UIA

Michigan’s Unemployment Insurance provides temporary income to unemployed workers who lost their job through no fault of their own. The unemployment taxes paid by employers are the funding source behind the program. The UIA offers an array of online services to both unemployed workers and employees, but clients can access the organization via phone, an online account, or in person at one of 13 local offices statewide.

The Last Time the UIA “Improved” the System.

The last major update to the UIA occurred under the Snyder Administration in 2013. However, court filings revealed that Michigan’s $47 million program to “improve” the UIA had to be “scaled back” after thousands of people were wrongfully denied benefits or hit with fraud claims. See Inside Michigan’s faulty unemployment system that hit thousands with fraud. Worse, these wrongful denials resulted in a cascade of financial issues for these individuals, including improper penalties and bankruptcies.

Needless to say, there is a high ceiling for improving the UIA’s system.

What Is Changing?

But the current changes appear to focus on improving access and customer service. Specifically, the changes to the UIA include:

  • Consolidating multiple phone lines into one main customer service number for employers.
  • New menu options will guide callers to the customer service unit most suited to addressing the caller’s need. This system should streamline the process for those contacting the agency and better direct them to compatible agents.
  • A new enhanced callback feature is intended to reduce the burden on callers previously forced to sit in call limbo, i.e., put on hold. Callers will have the option to hang up and receive a call back when their turn in the queue has been reached.
  • A real-time chat application will also be added to the Michigan Web Account Manager. This upgrade enables callers to avoid phones and messages and chat with customer service live in real-time. Those seeking to contact the UIA can find this convenient option within their Michigan Web Account Manager (MiWAM) to connect with customer service representatives during normal business hours.

New Contact Information and Hours for the UIA

The UIA’s new call-in number is 1-855-484-2636. It will handle all inbound calls going forward. You can reach UIA Employer Customer Service at 1-855-484-2636 Monday through Friday from 8 a.m. to 5 p.m. For the hearing impaired, TTY service is available at 1-866-366-0004. You may also send a message online through the Michigan Web Account Manager or use the upcoming live chat feature beginning August 22.

If you are an employer who has questions about this article or for responding to a claim for unemployment benefits, use this link to contact Michigan attorney Jason Shinn. Our law firm collaborates with employers to assess when to oppose an unemployment claim and to best-position the company for successfully obtaining a denial of benefits.

Criminal background check

Criminal background checks are routine for job applicants. But in 2012, the Equal Employment Opportunity Commission (EEOC) disrupted that routine when it issued guidance for how and when criminal background checks should be used by employers. But – at least in Texas – the Fifth Circuit Court of Appeals restored the status quo; It ruled the EEOC cannot enforce the guidance against Texas to disqualify applicants with criminal convictions. Here’s a link to the Fifth Circuit Court of Appeals August 6, 2019, decision (Texas v EEOC).

The EEOC’s criminal background guidance reasoned that using criminal convictions to disqualify applicants could lead to race and national origin discrimination. Accordingly, it recommended employers eliminate policies and practices that exclude people from employment solely based on any criminal record conduct. Instead, employers were told they should conduct individualized assessments of the job requirements and applicants to determine specific offenses that may demonstrate unfitness for performing the job.

Texas responded to the EEOC’s 2012 guidance by suing the federal government. It argued the EEOC exceeded its authority and that the guidelines conflicted with Texas laws barring the employment of workers with felony convictions for certain positions. Texas also argued it should be able to impose categorical bans on hiring workers with criminal backgrounds.

The Fifth Circuit Court of Appeals upheld an order blocking the EEOC from enforcing its guidance against Texas. Admittedly, this conclusion omits significant procedural twists and turns between the initial suit by Texas and the Court of Appeals decision. See the opinion for this discussion. The Fifth Circuit concluded the EEOC’s guidance was a substantive rule. As such, the EEOC was enjoined from enforcing it because federal law does not authorize the  Agency to promulgate substantive rules to implement Title VII.  So the Court modified the district court’s injunction, which prohibited the EEOC’s guidance “until [it] complied with the notice and comment requirements under the [federal Administrative Procedure Act (APA)] for promulgating an enforceable substantive rule.”

One interesting quirk to the Fifth Circuit’s ruling was the dichotomy between the interests of the Trump administration’s Justice Department and that of the EEOC it was representing. The DOJ’s brief stated: “Neither the Department of Justice, nor any other government agency is bound by the guidance … [the DOJ] disagrees with the approach and analysis of the EEOC in numerous respects … [there is] no material probability the DOJ would seek to enforce the EEOC’s guidance …” Reading between the lines, the EEOC guidance is often described in terms of being an “Obama-Era Restriction.”

What does this mean for Michigan Employers?

As we have previously noted, the EEOC’s criminal conviction guidance closely parallels legislative actions taken by state and local governments that have implemented rules prohibiting the use of criminal convictions to exclude applicants. This initiative commonly referred to as “ban the box.” In fact, Michigan, under former Gov. Snyder, an executive order prohibited state departments from initially asking job seekers if they’ve been convicted of a felony. See Michigan “Bans-the-Box” for State Job Applicants. Similar to the EEOC’s guidance, a criminal history review could still happen later in the hiring process, just not as an initial screen for State of Michigan job applicants.

However, this ban of the EEOC’s guidance is of limited present value to Michigan employers; the Fifth Circuit does not include Michigan (it is in the Sixth Circuit). Even so, the Fifth Circuit expressly declined to prohibit the EEOC from challenging criminal background checks for allegedly violating Title VII (e.g., under an adverse impact theory); it just cannot enforce Title VII using the guidance to interprete Title VII violations. Of more interest, the court’s analysis provides a roadmap for employers to challenge other EEOC “substantive” rules issued (arguably) in violation of the APA.

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article, or complying with Michigan or federal employment laws or litigating claims under both. Since 2001, Mr. Shinn has represented companies and individuals in employment discrimination claims under federal and Michigan employment laws.

Is “continued employment” sufficient “consideration” to support the enforcement of a non-compete agreement? It is an issue present in many non-compete disputes. But it is also an issue that may be overlooked or (incorrectly) assumed to be a “non-issue.”

If you need a refresher course on what consideration is and why it matters, we’ve got you covered.

As to how consideration plays out in non-compete disputes, I ran across a recent Illinois Court of Appeals decision where a lower court that dismissed an employer’s non-compete claim because continued employment was found to be sufficient consideration.

Specifically, in Axion RMS v. Booth (2019 IL App), the Court agreed with the trial court’s reasoning, which was as follows:

… where restrictive covenants are supported by adequate consideration based exclusively on continued employment, the employee’s employment must continue for at least two years after execution of the restrictive covenant … Booth’s [the former employees] employment for less than a year after he entered into the employment agreement at issue was insufficient to constitute adequate consideration … due to the lack of adequate consideration, the noncompete clause between Axion and Booth was unenforceable.

Since my matter involved Michigan law, the Axion case was relegated to a footnote because it was not “binding authority.”

Rather than going through the legal underpinnings for this conclusion, just take my word that a court opinion from another state’s judge is not binding on a Michigan Judge. It would be like someone from the Northeast telling a Michigander that a carbonated beverage is correctly called a “soda, not a “pop,” which is still way less weird than the South calling any carbonated beverage a “Coke,” even if it isn’t (do they really call a “Pepsi” a “Coke?”). In any event, in Michigan, pop is pop and you can’t tell me otherwise because that’s just crazy. The same concept applies to out-of-state court opinions … or does it?

Is Continued Employment Good Consideration in Michigan? Wait, ask Iowa?

So turning to Michigan law, attorneys who do not regularly deal with non-compete issues almost always assume the issue of continued employment as a basis for enforcing a non-compete law is a settled issue. But as we’ve previously noted, Michigan’s Supreme Court has never ruled on this issue.

Instead, the case frequently cited as support for this point comes from a 1991 federal case decided in the Eastern District of Michigan, Robert Half Int’l, Inc v Van Steenis. In Robert Half, the federal judge decided that in Michigan, continued employment was sufficient consideration to support a non-compete restriction. So you may be thinking, “ok, it’s not a ‘Michigan State judge” making the decision, but at least it was a judge sitting in a courtroom in Michigan carefully researching and analyzing Michigan law before deciding what the law should be in Michigan, right?”

Wrong! the Judge in Robert Half reached this conclusion based on (drum roll) ….. a 1983 Iowa court opinion (I can only assume if the judge had relied on Ohio law, the decision would have been overturned and Michigan politicians would have called for impeachment hearings). Yet this conclusion is often regurgitated without further thought – by attorneys and even judges (see QIS, Inc. v. Industrial Quality Control, Inc. (2004)).

How Does Continued Employment Affect your Noncompete Issue?

Does this mean your non-compete agreement is null and void because you signed it after your employment begin? If you are an employer adding non-compete or other post-employment restrictions to existing employment relationships should employees be given a bonus or other “consideration” beyond “continued employment?” The safe answer is “maybe.” The better answer is to talk to an experienced non-compete attorney who regularly deals with non-compete issues. But as the above cases make clear, it is not necessarily a settled answer under current Michigan law.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.

noncompeteMichigan’s Attorney General (AG) Dana Nessel joined 17 other State Attorneys General to respond to the Federal Trade Commission’s (FTC) request for public comments. These comments concern the FTC’s public hearings on Competition and Consumer Protection in the 21st Century. Ms. Nessel’s response echoes a growing concern across the United States about the use and enforcement of non-compete restrictions: See Employees Are Winners in Push-Back Against Non-compete Restrictions

Among the recommendations made by Attorney General Nessel and her colleagues is for the FTC to scrutinize post-employment restrictions. Here’s the AG’s full recommendations and report: State Attorneys General Comments on Labor Issues in Antitrust. Specific to non-compete restrictions, the AGs recommend:

At a minimum, we recommend that the FTC use its authority to ban intra-franchise no-poach agreements and noncompete agreements for low-wage workers. … We further propose the FTC consider a ban on non-competes involving multi-sided platforms [referring to “gig” employees who depend on an app or platform that connects different groups of users of the platform].

Kinds of post-employment restrictions employees face.

The recommendations are in response to various post-employment restrictions that employees increasingly must enter into as a condition of employment. As we’ve reported, such restrictions often extend to low-wage workers. These restrictions may be summarized as follows:

  1. A non-compete agreement between an employer and an employee restricts an employee’s ability to work for a competitor after leaving their employer.
  2. Under a non-solicitation agreement, the employer and employee agree that if the employee leaves the company, she will not solicit other employees from the old company to join the new company.
  3. Agreements between employers to not hire each other’s employees are called horizontal agreements. These restrictions between competitors reduce competition for labor. However, such limits are almost always illegal
  4. “No-poach” agreements are another post-employment restriction. These are similar to horizontal agreements but are between related organizations. An example would be a franchisor and a franchisee. Under these restrictions, the franchisee agrees not to hire employees of other franchisees. Notably, employees may not know of or consent to such restrictions because they are between employers.

Is more scrutiny needed for enforcing Noncompete restrictions?

The AGs offer detailed and well-supported arguments for why assessing such restrictions are needed.

Critics suggest good counter-points. But they also too easily dismiss the recommendations as an interference “with state contractual rights.” Or they downplay the argument that “the agreements can harm workers by limiting their employment options and ability to seek higher-paying jobs.”

I agree to some degree that non-compete and other post-employment restrictions have a rightful place in business. Admittedly, we routinely represent employers in drafting, implementing, and enforcing non-compete and related restrictions. But such representation is generally limited to important business interests, e.g., executives, sales representatives, buyers or sellers in business transactions, or similar considerations are involved. And we encourage our business clients to carefully consider which employees/positions are subject to post-employment restrictions. So throwing the proverbial “baby” out with the bathwater is not the answer.

But requiring all employees – irrespective of position or other meaningful assessment is also the wrong answer. This is because egregious misuse of post-employment restrictions abounds, something even the most entrenched critics favoring unfettered enforcement of post-employment restrictions acknowledges.

Wage suppression through non-solicitation restrictions.

Further, post-employment limitations are increasingly misused for anti-competitive purposes that do not protect legitimate business interests. In this regard, we have been in the “litigation trenches” representing numerous clients against questionable to outright unlawful non-compete litigation.

Case in point, we recently resolved a lawsuit filed by an employer who claimed its former employees “damaged” the plaintiff by “attempting” to solicit away employees ranging from a used car salesman, “insurance personnel,” “billers,” and other auto dealership employees. The former employees had joined a new entrant into the new and used car dealership business.

The damages; Plaintiff did not lose a single employee (outside the defendants who ended their employment for other opportunities). But the plaintiff claimed it was “forced” to offer more compensation to retain those individuals allegedly solicited by defendants. The price-tag: almost $250,000.00 in damages (or so the story goes).

In other words, the plaintiff was using its non-solicitation restriction to suppress its workforce wages. Such damages, however, were not convincing (it resolved for nuisance value). Nonetheless, the individuals lost good-paying jobs with the new employer (who wanted nothing to do with a lawsuit) and they incurred legal and mediation fees.

Leveling the playing field for enforcing post-employment restrictions.

The common denominator in lawsuits like the preceding is that the former employer rarely needs to “win.” Or, a minimal investment of time and resources is all that is required; merely threatening litigation. Such actions are generally enough to scare off a competitor or start-up from hiring the worker away. See Running out the Clock in Non-compete Disputes: A Frustrating Reality for Employees.

One recommendation that could temper such abuses without invalidating non-compete and other post-employment restrictions would be to amend statutes concerning the enforcement of non-compete agreements to include a bad-faith provision. Such an amendment could be similar to Michigan and other states’ that allow for the statutory recovery of attorney’ fees in bad-faith secret misappropriation claims. While no silver bullet, at least this would create some mechanism to compel a company to carefully scrutinize its liability before pursuing post-employment restrictions for improper purposes, e.g., suppressing wages or eliminating legitimate competition.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.