When starting a new job in Michigan, workers are often asked to sign some version of a non-competition or non-solicitation agreement. These agreements are meant to protect the business’s reasonable interests should your time with the business cease. For many reasons, these agreements are not well understood by those who are left without an option but to sign it or else risk not getting the job. Conversely, when employment terminates, businesses are often left wondering what the agreement actually gives them the power to do.
While there is nothing inherently wrong with these agreements, and while they have been in use for many years, Northern Michigan Courts have routinely limited their effect. The starting point is that the agreements must protect a reasonable business interest. You cannot prevent someone from using general knowledge that they gain through employment in the future, but if there is something special about how your business operates, you can protect it. These agreements must also be specifically tailored to represent a reasonable protection based on duration, geographic scope, and subject matter coverage. Finally, these agreements must not seek to simply prevent competition.
Here is a look at a few things that every employer that utilizes these agreements and every employee that signs one, should know:
EMPLOYERS: Be reasonable and be clear. I always suggest against using boiler plate agreements that you find on the internet, at least without significant editing, because no two businesses are the same. You may have a specific process that you developed to bolster your business that is not generally known in the industry. You may have client lists that have taken years and many thousands of dollars in advertising to build. These are reasonable considerations to protect. It is inherently reasonable to prevent an employee from taking these processes and using them to his or her own financial gain but you must limit this prevention so it protects your interests specifically. If you only do business in Traverse City, you need to limit the agreement to actions by the former employee to this geographic area (after all, it shouldn’t hurt your business if he or she uses the processes in Texas). Consider using a mile radius that covers a few neighboring counties especially if you could show that some of your clients, past or present, hailed from those areas. Limit the duration of the agreement to 3 years or less. Michigan Courts have consistently held that longer durations are unenforceable. Finally, limit the subject matter to what it is that you are seeking to protect. You cannot prevent an employee from making any use of his training or degree by casting a broad net that covers jobs that in no manner compete with yours. The key is to be clear and concise so that if you need to have the Courts enforce your agreement you already have your ducks in a row.
EMPLOYEES: READ THE AGREEMENT BEFORE YOU SIGN! I know that in the excitement of landing a new job you would do just about anything to make the transition go smoothly, but not all jobs work out and you need to know that if you need to find something else, these Agreements will not prevent you from doing so. An unreasonable restriction can always be challenged in the Courts but it may very well cost you thousands of dollars to do so. Make sure you understand exactly what it is that the employer is seeking to protect. They have legitimate interests in protecting their business, but not in preventing you from getting your next job if need be. There may be room to negotiate the terms of the agreement but this can only be done before you actually sign, so know what you are getting into and know your rights.
