noncompete agreements
This page is for general informational purposes only and should not be considered legal advice. Your situation may not fit the claim you think it would, but it may fit another. Only an attorney with comprehensive knowledge of employment law can tell you whether you have a claim. You should always consult with an attorney before taking or refraining from taking any action in your individual situation.
Enforceability of Agreements Not to Compete
Noncompetition agreements are disfavored by courts as restraints on commerce and are only enforceable to the extent they are reasonable. This “reasonable” requirement is subject to interpretation, and therefore noncompete agreements can often be challenged.
In Michigan, a noncompete agreement will be reasonable, and thus enforceable, as long as: (1) it is reasonably drawn as to its duration, geographical scope, and employment type; and (2) it protects the legitimate business interests of the party seeking enforcement.
Thus, whether a noncompete agreement is unreasonable as to duration, geographical scope, or type of employment is not analyzed in the abstract, but in the context of the employer’s particular business interest and the function and knowledge of the particular employee. Economic hardship on the employee may also be considered. Consideration supporting the noncompete agreement, or benefit conferred to the employee, can also be a factor, although Michigan courts have somewhat negated this by holding that the mere continuation of employment is sufficient consideration to support a noncompete restriction in an at-will employment agreement.
The relative subjectivity of the reasonableness requirement means that the same covenant not to compete may be invalid in one context, but not in others. For example, a doctor’s covenant not to compete within 100 miles may be held invalid where the former employer only serves clients within 25 miles, whereas that same covenant may be held valid for a salesperson whose employer serves a larger geographic area.
Because each case is decided based on the specific context of the situation, there are no bright line rules as to when a noncompete agreement is invalid. However, there are some generalizations that can be made.
Reasonableness of Duration Restriction in Noncompete Agreement
As a general rule, noncompetition restrictions in Michigan that are one year or less are generally reasonable as to duration, and thus valid, although noncompete agreements restricting competition up to five years have been held valid in some cases in Michigan.
Reasonableness of Geographic Restriction in Noncompete Agreement
As to geographical scope, noncompetition agreements are generally reasonable if they are limited to a 100-mile radius. Again, exceptions apply depending on context, and courts have upheld noncompete agreements that have imposed much greater geographical restrictions.
Reasonableness of Employment Type Restriction in Noncompete Agreement
As to restrictions on type of employment, an agreement not to compete will likely be valid if it only restricts the employee from taking the same position with a competitor. Courts have also held that a noncompete agreement limiting the employee from working for an employer in any capacity is too broad to be enforceable. The reasonableness of any restriction to type of employment in between will depend on whether it serves the former employer’s business interests and how closely related the restriction is to the functions the employee performs.
Remedy If Noncompete is Held Unreasonable
If any portion of the noncompete agreement is deemed unreasonable by the court, the court has the power to reform the unreasonable restriction, leaving the reasonable restrictions in place. For example, if a court found a geographical restriction of 250 miles unreasonable, but a restriction on the same line of work for a duration of one year reasonable, the court could reform the noncompete agreement to prohibit the employee from competing within 100 miles, in the same position, for a year.
Remote Work and Noncompete Agreements
Because remote work has only recently become prevalent, there are a limited number of cases that have addressed the issue, and there do not appear to be any Michigan cases deciding the issues as of the date of writing. However, courts have interpreted noncompete agreements in other jurisdictions in at least one context. A federal court in Pennsylvania has held that an employee does not violate a noncompete agreement by working remotely within the geographical restriction so long as the customers served are not within the restricted area. A federal court in Illinois has found similarly. These cases are not binding in Michigan, but a Michigan court may be inclined to adopt the reasoning.
How can i get out of a Noncompete Agreement?
If you would like to take a new job but have a noncompete agreement that you think may prohibit your ability to do so, there are a couple of different steps you can take.
First, you can do nothing. Take the job and hope the employer does not sue to enforce the agreement. However, if the employer does elect to enforce the agreement, you will likely be sued for breach of contract and the employer will seek an injunction prohibiting your new employment. We do not recommend this approach.
Second, you can try to negotiate with your employer to get permission to take the new job despite it potentially violating the breach of contract. You can do this on your own. However, we recommend you contact us to negotiate on your behalf. Not only do we have an expansive employment litigation experience and knowledge we can use to create leverage for you, but we can also ensure you have an enforceable agreement releasing you from liability.
Third, you can file a motion for declaratory judgment, asking the court to declare a portion of the noncompete that restricts your ability to take the new position unreasonable.
If you have a noncompete agreement that you are worried may impact your employment elsewhere, contact Fett Law and we would be happy to review the noncompete agreement.