Michigan Non-Compete and Non-Solicitation Agreements Frequently Asked Questions

1. Are non-compete or non-solicitation agreements enforceable in Michigan?

Yes, if the former employer can prove certain requirements as outlined below.

2. When is a non-compete or non-solicitation agreement enforceable in Michigan?

Under Section 445.774a of the Michigan Antitrust Reform Act, if an employer wants to enforce a non-compete or non-solicitation agreement against a former employee or contractor, the employer must prove:

1. The agreement is in writing and signed by the former employee or contractor;
2. The former employer has a “reasonable competitive business interest” they are seeking to protect;
3. The former employee or contractor’s new “line of business” is the same as the former employer’s;
4. The agreement only limits employment or solicitation for a reasonable time, and only covers a “reasonable geographical area”; and
5. The non-compete or non-solicitation agreement is reasonably necessary to protect the former employer’s “reasonable competitive business interest.”

3. What are “reasonable competitive business interests” in Michigan?

Michigan courts states that the following may be considered a “reasonable competitive business interest”:

1. Customer relationships developed while working for the former employer.
2. Confidential information, such as the former employer’s customer lists, profit margins, or pricing schemes.
3. Trade secrets, which is a term defined by the Michigan Uniform Trade Secret Act to include, among other items, the former employer’s secret formulas, techniques, devices, or processes that derive independent economic value from not being generally known to the public and are subject to efforts that are reasonable under the circumstances to maintain its secrecy.

These are the three most common “reasonable competitive business interests,” but this list is not exhaustive.

4. What is the same “line of business” in Michigan?

The two most important factors that Michigan courts consider are:

1. How closely the products or services the former employer sells resembles the one a former employer sells at his current employer or business.
2. How closely the former employer’s current or prospective customer base is to a former employee’s customer base.

In short, the more closely a former employee’s new business resembles the former employer’s business, the more likely a court will find it to be the same “line of business.”

5. What is a “reasonable” time restriction in Michigan?

Unfortunately, there is no bright line rule for time restrictions in non-compete and non-solicit agreements in Michigan.  Michigan courts have struck down restrictions for as little as 1 year because they were too long, and upheld restrictions for up 3 years as reasonable under the circumstances.  The court’s decision will depend on several factors, including:

1. The competitiveness of the field.  Generally, computer software sales is considered more competitive than fast food.
2. The former employee’s role in with the former employer.  Generally, the higher the former employee’s position, the more likely a Court will find a longer time restriction to be reasonable.
3. The breadth of the geographic restriction. Generally, a court is more likely to find a wide geographic restriction reasonable if the time restriction is more limited, and vice versa.

Time restrictions longer than 3 years are often struck down absent special circumstances.

6. What is a “reasonable” geographic restriction in Michigan?

It depends on the geographic scope of the former employer’s business.  For instance, if the former employer is an international company like Ford, Chrysler, or GM, and the employee was involved in worldwide sales, courts may find a worldwide scope to be appropriate.

If the former employer is a national company, like Quicken Loans, and the employee was involved in nationwide sales, a court may limit the agreement to the United States.

If the former employer is a Michigan based company like Henry Ford, Beaumont, or Ascension, and the employee does business for the employer throughout the state, a court may limit the geographic scope to the State of Michigan only.

If the former employer has a single location, courts will usually limit the restriction to the radius of its customer base (e.g., if 90% of customers come from 10 miles or less away, a restriction beyond 10 miles may be unreasonable).

7. How to defeat a non-compete or non-solicitation agreement in Michigan?

There are many legal defenses against enforcement of a non-compete or non-solicit agreement. For example:

1. The agreement is overbroad in its time or geographic scope. The scope of the non-compete or non-solicit may be overbroad in geography or time.
2. The new business does not compete with the employee’s old business. A business generally is unable to enforce a restrictive covenant against an individual who is not engaging in competitive activities.
3. The former employer has unclean hands. “Unclean hands” just means a court will take into consideration unlawful or improper actions taken by your former employer.

There are many other potential defenses. For more comprehensive information on how to defend against non-compete and non-solicit agreements, view our Insights article Best Practices for Defending Against Non-Compete Agreements

8. What happens if I violate my non-compete or non-solicitation agreement in Michigan?

A former employer may seek the following when enforcing a non-compete or non-solicitation agreement:

1. A temporary and permanent injunction. A court order stopping the current employer from employing the former employee or ordering the former employee to shut down a competing business either temporarily or permanently.
2. Monetary damages. Paying the former employer money to compensate them for the harm done by competing against them (e.g., loss of customers, etc.).
3. Attorney fees.  However, attorney’s fees can only be recovered if provided for in the non-compete or non-solicit agreement.

Usually, the former employer will file an action for breach of contract.  They may also assert other claims depending on the circumstances, such as statutory claims of unfair and deceptive business practice. Depending on the claims asserted, a business may be able to recover compensatory damages or punitive damages. If a former employee subject to a non-compete or non-solicitation agreement works for a new employer that competes with the former employer, then the former employer may also be able to sue the new employer for damages for a claim of tortious interference.

9. What is a temporary restraining order in Michigan?

A temporary restraining order stops a party from engaging in certain conduct—such as violating a non-compete agreement—for up to 14 days. A temporary restraining order permits and employer to quickly stop an action that will cause it immediate and irreparable harm—such as a former employee violating a non-compete agreement.

A temporary restraining order may be issued without notice to the opposing party, but only if certain criteria are met.

10. What is a preliminary injunction in Michigan?

A preliminary injunction stops a party from engaging in certain conduct—such as violating a non-compete agreement—until the final resolution of a lawsuit. Preliminary injunctions differ from temporary restraining orders in two important ways:

1. Preliminary injunctions always require notice to the opposing party; and
2. After it is granted, a preliminary injunction typically remains in place until a trial is held on the merits of the case.

When filing a lawsuit to enforce a non-compete agreement, the former employer often asks the court to immediately issue an injunction against the former employee or contractor who is competing.

11. Can my employer terminate my employment if I do not sign a non-compete or non-solicitation agreement after starting my employment in Michigan?

Generally, yes.  Unless the employer is already contractually obligated to retain the employee (i.e., you have an employment contract for a specified and unexpired number of months or years), your employer can threaten you with termination if you do not sign a non-compete or non-solicit agreement.  As an at-will employee, they can terminate your employment if you do not sign the non-compete or non-solicitation agreement.

12. I signed my non-compete, non-solicitation, or non-disclosure agreement electronically.  Are electronic signatures enforceable in Michigan?

Yes, they are enforceable. The Michigan Uniform Electronic Transactions Act (“UETA”) went into effect on October 16, 2000. The UETA states, “If a law requires a signature, an electronic signature satisfies the law.”  Therefore, your electronic signature will be treated the same as a wet-ink signature in Michigan.

13. What should I look for in a non-compete or non-solicitation attorney in Michigan?

The three most important factors are:

1. Educational background;
2. Subject matter expertise; and
3. Past results.

We handle non-compete, employment, and business disputes throughout Michigan,  including: Detroit, Ann Arbor, Canton, Brighton, Howell, Saline, Adrian, Taylor, Plymouth, Northville, Westland, Ypsilanti, Pittsfield Township, Warren, Sterling Heights, Farmington, Pontiac, Romulus, Lansing, Novi, South Lyon, Southfield, Birmingham, Bloomfield Hills, West Bloomfield, Royal Oak, Troy, Rochester, Jackson, East Lansing, Garden City, Livonia, Dearborn, St Clair Shores, Hazel Park, Ferndale, Madison Heights, Waterford, Milford, Shelby Township, Clarkston, Oak Park, Berkley, Fraser, Sterling Heights, Flint, Clinton Township, Auburn Hills, Washtenaw County, Wayne County, Monroe County, Macomb County, Livingston County, Oakland County.

We also have FAQs relating to non-compete and non-solicit agreements specific to other states, including Florida and Georgia. To see all our FAQs, visit here