Sometimes employers require employees to sign non-compete agreements as a condition of employment.  The law in Michigan is well-developed on the issue of the enforceability of non-compete agreements. 

An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent that any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.

An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business. Agreements not to compete in employment situations are permissible as long as they are reasonable. To be enforceable under Michigan law, a noncompetition provision must be tailored such that the scope of the agreement, considering duration, geographical area and type of employment or line of business restricted, is no greater than reasonably necessary to protect the employer’s reasonable business interests.

In the context of a professional services business, such as a medical practice, the employer has a reasonable competitive business interest to protect in enforcing an agreement not to compete.  For example, if a medical practice hires a physician to be part of its group, it will expend certain resources to build that physician’s practice.  It will market the physician, it will have him see its patients.  It will use its goodwill to ensure that physician’s success.  The physician will then build relationships with its patients.  If the physician then leaves the practice, he is in a position to unfairly compete with the practice.  He might be able to succeed in driving it out of business simply because of the effort and resources that the practice invested in him over the years.  If other practices see this happen, why in the world would they ever invest any time in hiring and building up physicians.  Taken to its logical conclusion, businesses would cease to grow.  All physician practices will be made up of a couple owners and no more.

Thus, the law seeks to protect the market and encourage the growth of businesses.  If the courts will protect businesses from unfair competition from their employees, businesses will be more inclined to invest in their workforce.  By enforcing non-compete agreements, the law facilitates competition.  It is the job of the courts to enforce non-compete agreements only to the extent that they protect the reasonable competitive business interests of the employer seeking its enforcement. 

— Kassem Dakhlallah is a partner with Jaafar & Mahdi Law Group, P.C.  His practice focuses on complex litigation, including class actions, representative actions, commercial litigation, civil forfeiture and personal injury. He can be reached at (313) 846-6400 and kassem@jaafarandmahdi.com.