Employee Non-Compete Agreement and Enforceability Memo — Michigan

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MICHIGAN Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

PART A — ENFORCEABILITY MEMO

A.1 Statutory Framework — MCL 445.774a

Michigan governs employee non-competes by statute. MCL 445.774a, part of the Michigan Antitrust Reform Act (MARA, MCL 445.771 et seq.), provides:

"(1) 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 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.

(2) This section shall apply to covenants and agreements which are entered into after March 29, 1985."

A.2 Scope — Innovation Ventures (2016)

In Innovation Ventures, LLC v. Liquid Manufacturing, LLC, 499 Mich. 491 (2016), the Michigan Supreme Court held that MCL 445.774a applies only to employer-employee covenants. Commercial non-competes between businesses are evaluated under MARA's "rule of reason" derived from federal antitrust law. This memo addresses only employee covenants.

A.3 Three Reasonableness Dimensions

A non-compete is enforceable if reasonable as to:

A.4 Legitimate Business Interests

Michigan courts recognize the following as "reasonable competitive business interests" worthy of protection:

• Confidential information and trade secrets;
• Customer relationships and goodwill (especially where employee had material contact);
• Specialized training and investment in employee development;
• Pricing strategies and business processes; and
• Unique workforce relationships.

St. Clair Med., P.C. v. Borgiel, 270 Mich. App. 260 (2006), articulates the reasonableness inquiry: the restraint must protect against the employee's gaining "some unfair advantage in competition" rather than prohibiting use of general knowledge.

A.5 Judicial Modification — Statutory Authorization

Unlike North Carolina, Michigan expressly authorizes courts to limit and enforce overbroad covenants:

"To the extent 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." MCL 445.774a(1).

Coates v. Bastian Bros., Inc., 276 Mich. App. 498 (2007), affirms the court's authority to use this "limiting" or "blue-pencil" approach. Michigan courts routinely modify overbroad time, geography, and scope provisions rather than voiding entire covenants.

A.6 Consideration

Continued at-will employment is generally sufficient consideration under Michigan caselaw (QIS, Inc. v. Industrial Quality Control, Inc., 262 Mich. App. 592 (2004)). However, additional consideration is best practice:

A.7 Industry-Specific Considerations

• Lawyers: Michigan Rule of Professional Conduct 5.6 prohibits employment agreements that restrict an attorney's right to practice, except retirement agreements.
• Physicians: Enforceable under reasonableness standard but scrutinized for public-interest impact (patient access, specialty availability).
• Broadcasters: No separate statute; MCL 445.774a applies.
• Public employees / educators: Constitutional and statutory issues may apply.

A.8 Trade-Secret Overlay

The Michigan Uniform Trade Secrets Act (MUTSA), MCL 445.1901 et seq., independently protects trade secrets. It provides:

• Injunctive relief (MCL 445.1903);
• Damages including unjust enrichment (MCL 445.1904);
• Exemplary damages up to twice compensatory for willful and malicious misappropriation;
• Attorney's fees for bad-faith claims, motions to terminate injunctions, or willful misappropriation (MCL 445.1905).

A.9 Choice of Law

Michigan courts generally honor reasonable choice-of-law clauses absent a strong Michigan public-policy override. Chrysler Corp. v. Skyline Indus. Servs., Inc., 448 Mich. 113 (1995). Where the employee primarily works in Michigan, Michigan courts may apply MCL 445.774a regardless of choice-of-law selection.

A.10 Remedies

• Injunctive relief — primary employer remedy; available under MCL 445.774a and MUTSA.
• Compensatory damages — including lost profits.
• Liquidated damages — enforceable if reasonable.
• Attorney's fees — recoverable under MUTSA for willful misappropriation or by contract.

A.11 Recent Developments

• Innovation Ventures (2016) — confirmed MCL 445.774a applies only to employee covenants.
• SB 143 / HB 4399 (2023) — proposed ban on non-competes for low-wage workers; not enacted.
• 2024 legislative session — additional restriction proposals introduced; monitor.
• Michigan AG 2024 guidance — Attorney General Dana Nessel published enforcement guidance emphasizing scrutiny of non-competes against lower-wage workers and warning of consumer-protection enforcement.
• FTC Non-Compete Rule set aside in Ryan, LLC v. FTC (N.D. Tex. Aug. 20, 2024); appeal pending.

PART B — NON-COMPETE AGREEMENT

B.1 Caption

Effective Date: [__/__/____]

B.2 Recitals

WHEREAS, the Company is engaged in [DESCRIBE BUSINESS] within Michigan and other jurisdictions and has invested substantial resources in developing confidential information, customer relationships, goodwill, and specialized training;

WHEREAS, in connection with Employee's [☐ initial employment / ☐ promotion / ☐ access to confidential information / ☐ receipt of consideration described below], the Company will provide Employee with access to confidential information, customer relationships, and specialized training that the Company has a reasonable competitive business interest in protecting under MCL 445.774a;

WHEREAS, this Agreement is entered into after March 29, 1985 and is therefore governed by the Michigan Antitrust Reform Act, MCL 445.771 et seq., including MCL 445.774a;

NOW, THEREFORE, in consideration of the mutual covenants below and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows.

B.3 Definitions

"Business of the Company" means [DESCRIBE WITH SPECIFICITY].

"Competing Business" means any person or entity that engages in the Business of the Company within the Restricted Territory.

"Confidential Information" means non-public information of the Company including [LIST], and includes "trade secrets" as defined in MCL 445.1902(d).

"Customer" means any person or entity to which the Company sold, marketed, or provided products or services during the [12 / 18 / 24] months preceding Employee's termination, and any prospective customer with whom Employee had material contact during that period.

"Restricted Period" means [6 / 12 / 18] months following the date Employee's employment with the Company terminates.

"Restricted Territory" means [DEFINE BY TIE TO EMPLOYER MARKET AND EMPLOYEE'S WORK AREA]:

☐ A 100-mile radius from each Company office at which Employee worked during the last 12 months of employment;
☐ The State of Michigan and any other state in which the Company operates and Employee performed services or had material Customer contact during the last 12 months of employment;
☐ The counties of [LIST] in Michigan in which Employee performed services or had material Customer contact during the last 12 months of employment;
☐ Other narrowly tailored description: [____________].

B.4 Acknowledgments

Employee acknowledges that:

(a) Employee has had a reasonable opportunity to review this Agreement and to consult with counsel of Employee's choice.

(b) Employee will receive Confidential Information, customer relationships, and specialized training that the Company has a reasonable competitive business interest in protecting under MCL 445.774a.

(c) The restrictions in this Agreement are reasonable as to duration, geographical area, and type of employment or line of business under MCL 445.774a(1).

(d) The restrictions are no greater than necessary to protect against Employee's gaining unfair advantage from Confidential Information, customer relationships, or specialized training, and do not prohibit Employee's use of general knowledge or skill.

B.5 Non-Compete

During the Restricted Period, Employee shall not, directly or indirectly, within the Restricted Territory:

(a) own, manage, operate, control, be employed by, consult for, or provide services to any Competing Business in a capacity in which Employee would (i) perform the same or substantially similar duties as Employee performed for the Company, or (ii) use or disclose Confidential Information; or

(b) engage in any business activity competitive with the Business of the Company in the capacity described in subsection (a).

Carve-out: Passive ownership of less than 2% of a publicly traded entity is permitted. Use of Employee's general knowledge and skill is not prohibited.

B.6 Non-Solicitation of Customers

During the Restricted Period, Employee shall not, directly or indirectly, solicit, divert, or accept business from any Customer with whom Employee had material contact during the last 24 months of employment, for the purpose of providing products or services competitive with the Business of the Company.

B.7 Non-Solicitation of Employees

During the Restricted Period, Employee shall not, directly or indirectly, solicit for employment, hire, or attempt to hire any person employed by the Company during the last 12 months of Employee's employment, other than through a general public advertisement not targeted at Company employees.

B.8 Consideration

In consideration for Employee's covenants, the Company shall provide (check all that apply):

☐ Initial employment with the Company effective [__/__/____]
☐ Sign-on bonus of $[____________]
☐ Promotion to [POSITION] effective [__/__/____]
☐ Salary increase of $[____________] effective [__/__/____]
☐ Equity grant of [___] [shares/RSUs/units] under the Company's [PLAN NAME]
☐ Severance commitment of [___] months base salary payable upon termination without Cause
☐ Continued at-will employment (per QIS, Inc.)
☐ Access to specialized training or Confidential Information not previously available
☐ Other: [____________]

Employee acknowledges that the foregoing constitutes adequate and valuable consideration under Michigan law.

B.9 Garden Leave (Optional)

☐ Employee shall provide [___] days' written notice of resignation. The Company may, in its discretion, place Employee on paid garden leave during the notice period, during which Employee shall remain an employee, continue to receive base salary and benefits, and shall not work for any other entity. Time on garden leave shall reduce the Restricted Period day-for-day.

B.10 Remedies

(a) Injunctive Relief. Employee acknowledges that breach would cause irreparable harm and that the Company is entitled to seek temporary, preliminary, and permanent injunctive relief, including under MUTSA, MCL 445.1903.

(b) Damages. The Company may seek monetary damages, including lost profits, disgorgement, and consequential damages.

(c) Tolling. The Restricted Period shall be tolled during any period of breach.

(d) Trade Secrets. Nothing in this Agreement limits the Company's rights or Employee's obligations under the Michigan Uniform Trade Secrets Act, MCL 445.1901 et seq., including exemplary damages and attorney's fees for willful misappropriation (MCL 445.1904–.1905).

(e) Attorney's Fees. In any action to enforce this Agreement, the prevailing party shall recover reasonable attorney's fees and costs, except as limited by MUTSA's fee-shifting rules for trade-secret claims.

B.11 Reformation Under MCL 445.774a(1)

The parties acknowledge that MCL 445.774a(1) authorizes a court to limit any provision found unreasonable as to duration, geographical area, or type of employment or line of business, and to specifically enforce the Agreement as so limited. The parties expressly request that the court do so if any portion is found unreasonable, and intend that the Agreement be enforced to the maximum extent permitted by Michigan law.

B.12 Choice of Law and Venue

This Agreement is governed by the laws of the State of Michigan without regard to conflict-of-laws principles. The parties consent to exclusive venue in the Circuit Court of [____________] County, Michigan, or the U.S. District Court for the [Eastern/Western] District of Michigan. The parties consent to designation of the action to the Michigan Business Court where eligible under MCL 600.8031 et seq.

B.13 Severability and Entire Agreement

The provisions of this Agreement are severable. This Agreement, together with [LIST RELATED AGREEMENTS], constitutes the entire agreement between the parties on the subject matter and supersedes all prior negotiations and understandings.

B.14 Signatures

PART C — PRE-SIGNING CHECKLIST

C.1 Statutory Compliance

☐ Agreement entered into after March 29, 1985 (MCL 445.774a applies)
☐ Agreement protects a "reasonable competitive business interest" of the employer
☐ Restrictions reasonable as to duration, geographical area, and type of employment/line of business
☐ Restrictions targeted to prevent unfair advantage — not use of general knowledge/skill

C.2 Reasonableness Audit

☐ Restricted Period ≤ 12 months (presumptively reasonable); ≤ 24 months only with record
☐ Restricted Territory tied to employer's market and where Employee actually worked
☐ Geographic radius ≤ 100 miles from Company office (default reasonable); broader only with specific justification
☐ Activity restriction limited to same/similar duties or use of Confidential Information
☐ Carve-outs for general knowledge, skill, and passive investments

C.3 Consideration

☐ Identify and document specific consideration (continued employment per QIS, Inc. + additional consideration recommended)
☐ For mid-employment agreements, document new benefit (raise, bonus, promotion, equity, training)
☐ Consideration recital ties consideration specifically to the covenant

C.4 Industry-Specific

☐ If Employee is a lawyer: do NOT use a practice-restricting non-compete (MRPC 5.6)
☐ If Employee is a physician: tailor narrowly; consider public-interest review
☐ If Employee handles trade secrets: ensure separate confidentiality protections under MUTSA
☐ Confirm no low-wage-worker restriction (monitor pending Michigan legislation)

C.5 Documentation and Exit

☐ Retain executed agreement and consideration evidence in personnel file
☐ Issue reminder of obligations at termination
☐ Document any waiver or modification in a separate writing signed by an authorized officer
☐ Confirm forwarding address for notices

C.6 Pre-Litigation Considerations

☐ Preserve evidence of legitimate business interest (customer relationships, confidential information, training investment)
☐ Confirm Employee was paid for any garden-leave period before enforcement
☐ Consider MUTSA trade-secret claim as supplemental theory
☐ Consider Business Court designation under MCL 600.8031 et seq.
☐ Confirm restrictions are reasonable to maximize judicial enforcement (rather than limiting/modification)

SOURCES AND REFERENCES

• Michigan Antitrust Reform Act (MARA), MCL 445.771 et seq.: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-Act-274-of-1984
• MCL 445.774a (employee non-competes): https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-445-774A
• Innovation Ventures, LLC v. Liquid Manufacturing, LLC, 499 Mich. 491 (2016): https://courts.michigan.gov/49ee62/siteassets/case-documents/uploads/opinions/final/sct/20160712_s150591_53_150591_op.pdf
• St. Clair Med., P.C. v. Borgiel, 270 Mich. App. 260 (2006)
• Coates v. Bastian Bros., Inc., 276 Mich. App. 498 (2007)
• QIS, Inc. v. Industrial Quality Control, Inc., 262 Mich. App. 592 (2004)
• Michigan Uniform Trade Secrets Act (MUTSA), MCL 445.1901 et seq.: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-Act-448-of-1998
• MCL 600.5807(9) (6-year contract SOL): https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-600-5807
• MCL 600.8031 et seq. (Business Court): https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-600-8031
• Michigan Rule of Professional Conduct 5.6: https://courts.michigan.gov/Courts/MichiganSupremeCourt/rules/Documents/Michigan%20Rules%20of%20Professional%20Conduct.pdf
• Michigan Attorney General — Employment Rights: https://www.michigan.gov/ag
• Michigan Department of Labor and Economic Opportunity: https://www.michigan.gov/leo