Last Friday was the tree lighting in downtown Grand Rapids. The Christmas season is officially here!
A question that comes up often in my business practice: “when are non-competes enforceable?”
I am thankful for Judge Yates with the Kent County Business Court who issues a lot of opinions on this area. In fact, he issued one just a few days ago that is helpful:
You can check out this December 3, 2019 Temporary Restraining Order issued by the Kent County Business Court.
In this instance, a local hair salon (where I used to get my hair cut until they moved from downtown) had their stylists sign non-competes.
The stylists left their employer to work with a competitor. The salon filed an Ex-Parte TRO to stop the stylists from working for a competing hair salon.
The Court, in its opinion, granted in part and denied in part the Salon’s request. The Court (at least before a hearing on the evidence) allowed the stylists to work for a competitor and limited the TRO simply to prohibit the stylists from soliciting customers of their former employer.
A broad takeaway from this brief opinion – yes, non-competes are generally enforceable, but not in all cases. The restrictions must be reasonable.
A question to ask: Is it reasonable to prohibit a hair stylist from going to another salon and using the stylists’ general knowledge and skill to cut hair somewhere else?
Is a business really harmed by this type of competition?
Trending to protect low-wage workers from unreasonable restrictions.
Just recently, Michigan’s Attorney General joined the Attorney Generals of several states in a letter to the FTC dated November 15, 2019 to ” to urge it to use its rulemaking authority to bring an end to the abusive use of non-compete clauses in employment contract.”
This isn’t a recent phenomenon. Several years ago Jimmy Johns was sued by a State Attorney General for its use of non-competition agreements to restrict employees rights to “make sandwiches” for a competitor.
Earlier this year the Legislature proposed a bill to restrict non-compete agreements with “lower-wage” employees – defined generally as $15.00/hr or $31,000 annually.
It seems there is a growing trend to protect employees from unreasonable restrictions on the ability to work. States are pushing for limitations on non-competes against employees – particularly employees in lower skilled jobs.
That being said, under Michigan law non-competes are general enforceable.
MCL 445.774a provides:“1) An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests…”
Two Lessons:
- Non-competes are generally enforceable – a court will narrow the scope of such a restrictive covenant if a court believes necessary in order to protect a legitimate business interest.
- Non-competes are less likely to be enforceable against low-level positions with no access to proprietary information.
Questions? comments?
email: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Purpose Driven General Counsel 