Crafting an ironclad noncompete agreement is essential for Michigan businesses today, especially where a company must protect its IP or other highly classified information to remain competitive. The main purpose of a noncompete is to prevent a former employee from either sharing trade secrets and revealing information about a company to a competitor, or directly competing with a former employer.
Even though a noncompete clause is a standard part of an employment contract, sometimes it becomes a source of dispute if the employee questions its restrictions or the enforceability. Above all, to be in accord with all parties, such an agreement must reflect the specific concerns of the company, and either satisfy the needs of the employee or offer sufficient consideration.
Requirements of a valid noncompete agreement
Most states allow noncompete agreements, so long as they are reasonable. Often, disputes that arise over the restrictions or enforcement of such a contract are due to the documents themselves being poorly drafted, causing unnecessary litigation.
To be valid, a non-competition agreement must have specific elements:
- An offer of consideration at the time of signing
- Protection of a legitimate interest of the employer
- Reasonable in time, scope and geography
The terms must have reasonable parameters for barring competition, not only of the time frame after employment and proximity to the company, but also of the nature of the information the former employee cannot reveal. The employee should receive something of sufficient value in return for signing the agreement that imposes restrictions that may temporarily limit their own competitiveness.
Noncompete agreements in Michigan
Michigan law provides for noncompete agreements, depending on the industry or type of employment, so long as they are reasonable in duration and geographic area. If the court finds the restrictions unreasonable, it may limit its scope to satisfy this requirement.
Noncompetes are highly advantageous to the employer. A valid noncompete agreement not only protects vital information from getting out into the open market, it also the incentivizes loyalty of its employees who might otherwise leave. Although it may temporarily limit an employee’s bargaining power relative to other employment opportunities, consideration that is compensatory is a clear reward for compliance.
Business owners in Wayne County may wish to further discuss their needs when crafting employment contracts or explore legal options when facing challenges to their noncompete clauses.