Non-competes are agreements that seek to restrict some level of competition between two or more parties.
In Michigan, these agreements are permissible, if they are reasonable as to subject matter, geographical reach and duration. And, where a particular non-compete is not so reasonable, courts have authority to enforce them through limitations on the non-compete provision.
Courts will consider:
Was there sufficient consideration? For example, in a new employment situation or the sale/purchase of a business, consideration is usually sufficient with the employment or the sale/purchase itself, respectively. On the flip side, if continued employment is the alleged consideration, such may only be sufficient if it continues for a substantial amount of time.
How reasonable is the restriction? Does it protect a reasonable, unfair competitive business interest or just a competitive interest? This question requires considering the type of business/restriction at issue. Courts attempt to balance the interests of the parties along with the public interest. Generally, courts will determine whether or not the non-compete causes minimal interference with a party’s ability to earn a living and confirm that it is no broader than necessary. For example, a court will consider whether the non-compete protects a party from “unfair” competition as opposed to mere competition, or does the non-compete seek to prevent a party from using general knowledge or skill as opposed to preventing an unfair advantage. On this point, factors considered include the frequency and exclusive nature of a party’s contacts with a customer, and how unique, complex or important are the services provided to the particular customer.
What is the duration of the non-compete? As with other considerations in analyzing a non-compete, this factor is very case specific. To the extent the geographical restriction and nature of the restriction are broad, the duration will likely need to be more limited and enforced more restrictively.
What is the geographic reach of the non-compete? Among
the factors considered here is whether or not the competition from the former party will adversely affect business at a specific location.
Among all the foregoing factors, the type of business at issue is a big consideration. Therefore, only legitimate business interests will be protected and a non-compete cannot unjustly impair a party’s ability to make a living.
To learn more about this topic, or other legal issues, please contact Anissa C. Hudy, 248.417.9154 or email at firstname.lastname@example.org (website - www.hudylaw.com).
Anissa Hudy focuses her practice on general business, real estate and commercial contracting, workout and litigation.
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