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What to do When you are Asked to Sign a Non-Competition Agreement?

Business Law

Non-Competition Agreements are enforceable in Michigan.  These contracts, sometimes called Covenants-Not-To-Compete, are designed to protect an employer from unfair competition from a former employee or are also used when buying or selling a business or setting up a distribution network.  Some estimates are that over 20% of workers in the United States are covered by Non-Competition Agreements, extending from upper management to sales employees to low-wage workers.

A Non-Competition Agreement prevents an employee from competing with the employer in a certain line of business, for a set period of time, in a certain geographic area, and must be limited to business necessity.  “Competition” can be defined broadly to include owning a business, entering a partnership, being employed, being an independent contractor, or even directly or indirectly assisting a competitor.  In Michigan, Non-Competition Agreements must have a legitimate business purpose, which typically means the contract must protect an employer’s trade secrets, customer lists, customer information, or other pricing information that has legitimate value and is not publicly known.

When presented with a Non-Competition Agreement, you should read the contract.  Often, people believe businesses looking to hire an employee who has signed a Non-Competition Agreement believe that Non-Competition Agreements are not enforceable, so they do not bother to read them or negotiate them.  This is a mistake.  Non-Competition Agreements are negotiable or may have certain unenforceable terms and must be evaluated by a business attorney.  Often a business attorney can assist in negotiating the geographic scope, time, or impact of a contract.  In addition, employees should review a Non-Competition Agreement to avoid paying former employers’ attorney fees and costs.  Finally, if an employee has come to an agreement with an employer on a specific term – make sure it is in the contract!  Often, contracts have a merger or integration clause which means that anything that is not written in the contract is void.

Employees and prospective business owners face potential risks when evaluating and dealing with Non-Competition Agreements.  The best approach is to err on the side of caution and engage appropriate counsel to assist in evaluating, negotiating, or defending against the enforcement of a Non-Competition or Non-Solicitation Agreement.  If you are dealing with any of these situations, please contact the business or commercial litigation attorneys at Shinners & Cook, P.C. to assist you with resolving your issues.