DETROIT ? Non-compete agreements are becoming more commonplace in Michigan as small start up technology companies grow, and partners go their own way. James Boutrous II, an employment litigation specialist with Butzel Long, discusses the essentials of non-competes in this column.

Boutrous’s practice includes traditional labor work, including considerable trial experience in employment discrimination matters, defending employers in labor arbitrations, as well as defending public employers before the Michigan Employment Relations Commission.

One of the first questions we get is, Are non-competes enforceable in Michigan? The answer is yes. In 1987, the Michigan legislature, in re-drafting the state?s antitrust legislation, carved out an exception providing for enforceability of non-competition agreements between employers and employees so long as the covenant protects a legitimate business interest and is reasonable as to its duration, geographical scope and line of business restrictions.

The most common legitimate business interests protected though non-compete agreements are:

The confidential and trade secret information to which particular employees are exposed; and

Customer relationships developed by employees while on the employer?s payroll.

As for reasonable duration, 18 months is fairly standard in Michigan. If, however, specific employers can demonstrate confidential and/or trade secret information is viable beyond 18 months, the restriction can be longer.

Likewise, the geographical scope of the restriction must be limited to the area in which the employer does business. Where an employer can demonstrate either national or international business interests, the court will uphold such a restriction.

Michigan also is a blue-pencil jurisdiction. If the court is convinced the employer has protectable business interests and thinks, for example, that two years is too long a time period to prohibit an employee from going to work for a competitor, but considers one year reasonable, the court can modify the agreement to one year and enforce it as modified.

When an employer discovers a non-compete has been breached, it is imperative for the employer to move quickly to enforce the agreement. That is, if an employer finds out its chief marketing officer, who just completed work on the current employer?s strategic plan, is at its major competitor and sits on the violation for three months, the court will require a good explanation as to why the employer waited so long. There is no question that time is of the essence with these cases.

Finally, an employer must enforce non-competes consistently. If an employer picks and chooses who to go after, it can later be argued that the employer?s non-competes are simply naked restraints of trade because whatever value they had in protecting the company?s business information or relationships was lost on prior employees that the employer chose not to prosecute.

Bottom line ? employers need to be consistent in enforcing their non-compete agreements and move quickly upon discovering a violation.

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