Non-Compete Agreements Must Be Reasonable

A common source of litigation for many businesses is breach of non-compete agreements by former employees. A company's success in such actions is closely related to the enforceability of the non-compete agreement terms. This is because Michigan law requires that all non-compete agreements be reasonable. If the agreement is not reasonable, the court may choose to limit the scope of the non-compete agreement or reject the agreement totally as unenforceable.

To be reasonable, a non-compete agreement must meet four requirements. First, the non-compete agreement must be structured to protect the employer's reasonable competitive business interests. This usually includes protecting the company's existing client base, protecting confidential information, and preventing a former employee from using specialized training for a new company. Additionally, non-compete agreements must be reasonable in duration, geographical area, and the restrictions on types of employment that are restricted. Michigan courts have consistently held that a one-year non-compete agreement is usually reasonable in duration. The reasonableness for geographical area restrictions usually depend on the company's true scope. For example, a national company may reasonably restrict competition within the entire United States, but smaller companies are usually limited to much more limited geographical restrictions. Finally, non-compete agreements must specify what types of employment are restricted pursuant to the non-compete agreement. Usually, reasonable restrictions include limits on particular types of employment within a particular industry.

The above is a simple summary of the extensive law related to the enforceability of non-compete agreements. The courts will look at each company's specific situation when determining the reasonableness of such agreements, but the courts often frown upon overly broad agreements. It is imperative that non-competes fit reasonableness requirements from the outset so that the courts are more likely to uphold such an agreement if it is breached in the future. Remember, the courts may reform an overly broad non-compete agreement, but they also have the option to entirely dismiss an over-broad agreement.

The topics contained in this article are intended to be general and representative in nature and not specific legal advice for any particular circumstance. Please feel free to contact Duba & Duba, PLLC to inquire about an analysis of your particular facts and circumstances.