In Michigan, noncompete agreements are only enforceable if reasonable

Many Michigan employers utilize noncompete agreements. A noncompete agreement, which may also be referred to as a covenant not to compete, generally prohibits an employee from working for certain competitors over a given period of time after the employment relationship ends.

Noncompetes are typically drafted heavily in an employer’s favor. Ideally, it is best to take action before signing a noncompete agreement to ensure it is on a more even keel. But, even after signing a noncompete, you may have legal options that can help you more freely practice your chosen profession.

Duration, geography, subject matter scope, and the employer’s interests are all important

Michigan courts will enforce noncompetes that are “reasonable.” Just what is reasonable is a matter of balancing the employer’s business interest against the right of the employee to work and earn a living in his or her trade. Under Michigan law, if a noncompete is challenged in court and parts of it are found to be reasonable while other parts are found to be unreasonable, the court has the discretion to limit the unreasonable portions of the agreement in order to make it enforceable.

There are generally four factors to be considered in determining the reasonableness of a noncompete agreement in Michigan: the line of business or type of employment, the geographical area, the duration, and the competitive business interest the employer is seeking to protect.

The line of business or type of employment inquiry has to do with what, exactly, the noncompete prohibits the employee from doing. A reasonable noncompete may prohibit a former employee from working in a specific subset of an industry, but a noncompete that prohibited a former employee from working for a competitor in any capacity, even in a position wholly unrelated to the employee’s former work, would be unreasonable.

The geographic area and duration factors are relatively straightforward. A noncompete agreement is unreasonable if it limits a former employee’s ability to work for too long over too large an area. A noncompete clause that prohibited competition over the entire nation usually would never be reasonable, whereas one that prohibited working for competitors in a radius of several miles around the employer’s place of business may be reasonable. Likewise, Michigan courts have not found noncompete durations in excess of three years to be reasonable, but the standard one year duration has been consistently deemed reasonable.

The final factor essentially means that through the noncompete, the employer must be trying to safeguard against an unfair advantage the former employee would have in competition against the employer in the immediate aftermath of the termination of the employment relationship. Examples of such an unfair advantage include specialized training, knowledge of the employer’s existing customers, and familiarity with confidential information. A noncompete that simply protects the employer from general competition does not concern an unfair advantage, and would not be reasonable.

Get help with your noncompete agreement from a Michigan employment law attorney

If you are being asked to sign a noncompete agreement, before doing so, ask for some time to consider it and run it by an attorney. Businesses expect savvy employees to do just this, and you are not risking anything by asking for the opportunity. If you already have a noncompete and want to challenge it, by exposing the unreasonableness of one of the four factors or pointing out a problem of construction like lack of consideration, you may be able to get the agreement invalidated or modified. In either case, the help of an employment law attorney experienced with noncompetes is essential.