Are Noncompete Agreements enforceable in Michigan?

Adam Keilen Business/Corporate Law, Litigation

Short answer. Yes, but nuances affect how they are enforced.

 

Consideration. An enforceable noncompete requires legal consideration. Legal consideration means something was given, a legal value and bargained for exchange; in other words, “this for that.” However, the Michigan Court of Appeals held that “[m]ere continuation of employment is sufficient consideration to support a noncompete agreement in an at-will employment setting.” QIS, Incorporated v. Industrial Quality Control Incorporated, 262 Mich App 592, 594; 686 NW2d 788 (2004).

Noncompete Agreements must be reasonable. MCL § 445.774(a) provides that:

 

(1) 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.

 

In plain English. A noncompete can be enforced to protect a reasonable competitive business interest; for example, meaning, to prevent someone from using your confidential and proprietary information to compete with you. However, legal consideration for the noncompete is required; in addition, the noncompete must be enforced in a reasonable manner, meaning for a reasonable time period, within a reasonable geography, and the nature of the business must be factored in. Thus, the scope of the restricted activity should be limited. Generally, the Courts will not prevent someone from using their general skills in the workplace, “a restrictive covenant [a noncompete] must protect against the employee’s gaining some unfair advantage in competition with the employer, but not prohibit the employee from using general knowledge or skill.” Coates v. Bastian Bros, Inc., 276 Mich App 498, 507 (2007).

 

The take away. Michigan Courts are unlikely to prevent someone from making a living if they are merely applying their general skills in the workplace; however, when there is legal consideration, and a confidential and proprietary interest involved, Michigan Courts are likely to enforce a noncompete in a reasonable manner that protects “reasonable competitive business interests.” MCL § 445.774(a).