Some Michigan businesses require employees to sign non-compete agreements to protect the business’s interests. A non-compete agreement precludes an employee, contractor, or former owner/partner from competing against the business in specific industries and geographic areas during the parties’ relationship and for a period after the end of the relationship. Non-compete agreements can have pros and cons for businesses. A Michigan business law attorney can help your company understand the advantages and disadvantages of having employees sign non-compete agreements.
Pros of Non-Compete Agreements
Some of the advantages of non-compete agreements for businesses include:
- Protects Trade Secrets and Confidential Information – A non-compete agreement prevents employees from using confidential or proprietary information divulged to them, such as trade secret formulas, customer lists, and pricing information, to launch or work for a competing business.
- Prevents Employee Poaching – Non-compete agreements prevent employees from starting competing businesses and using their relationships with their former co-workers to poach employees from their former employer.
- Protects Customer and Supplier Relationships – A non-compete bars an employee from using customer relationships they developed while working for the employer to take those customers to a competitor, protecting the employer’s investment in the customer relationship.
- Justifies Investment in an Employee’s Training – When an employer invests time and resources into building an employee’s knowledge and skills, non-compete agreements can justify the employer’s investment by preventing the employee from promptly leaving and using those skills to compete against the employer.
Cons of Non-Compete Agreements
Disadvantages of having employees sign non-compete agreements include:
- Creating Employee Dissatisfaction – Non-competes can restrict employees from leaving an employer and seeking alternative work in the field or in their profession, which can lead to employees feeling resentful and dissatisfied with the employer.
- Adverse Effects on Hiring – Prospective employees may avoid employers that insist on non-compete agreements as a condition of employment.
- Legal Challenges in Enforcing Non-Competes – A court may refuse to enforce a non-compete agreement if it finds it unenforceable under applicable state law. Employers, therefore, may incur substantial legal expenses to enforce a non-compete agreement against a former employee who breaches it or if the employee challenges the validity and enforceability of the agreement.
Understanding Michigan Law Governing Non-Compete Agreements
Under Michigan law, a business may have an employee enter a non-compete agreement if the agreement has a reasonable duration, geographic scope, and employment type(s) or line(s) of business. What a court may deem as reasonable will depend on the specific circumstances of an employer’s and employee’s relationship, including the employee’s role with the employer, the confidential or proprietary information divulged to the employee, and the employee’s ability to seek new employment within their education, training, and experience. When a court finds a non-compete agreement unreasonable in any aspect, the court may limit the scope of the unreasonable provision to the extent necessary to make the provision enforceable.
Contact a Business Law Attorney Today
Before negotiating or signing a non-compete agreement with one of your employees, your company should talk to a knowledgeable attorney about the advantages and drawbacks of non-competes. Contact August Law, PLLC, today for an initial consultation with our legal team to learn more about what non-compete agreements mean for Michigan businesses.