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Non-competition agreements can be an effective business tool

Hubbard Snitchler & Parzianello

A non-competition agreement is used when a business wants to protect its information, such as trade secrets or company strategies, from competing businesses. The agreement, often signed when an employee begins his or her employment with the business, prevents the employee from working for a competing business after his or her employment ends.

Courts sometimes may view non-competition agreement as an interference with an employee’s right to earn a living, however. For this reason, it is important to understand the elements of a valid non-competition agreement.

Key ingredients to an enforceable non-competition agreement

First, there must be consideration at the time the non-competition agreement is signed. Consideration refers to something of value the employee receives in order not to compete. Sometimes, that is the employment itself if the agreement is signed prior to the employment or may be in the form of a promotion or other benefit if it is not.

Second, it must protect a legitimate business interest of the employer. Legitimate business interests include goodwill, otherwise known as customer relationships, or confidential information that could increase the other business’s competitive advantage.

Third, the agreement must be reasonable in duration and scope. Duration refers to the time it is enforceable and the scope refers to the geographic span of the agreement. If a court determines either of these to be unreasonable, it may void the entire agreement.

Michigan automotive and manufacturing industries offer unique, innovative products to their consumers and a non-competitive agreement can be a useful tool for these businesses to protect their interests. In order to be effective, they must be drafted fairly and balanced with each party’s interests in mind.

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