Non-Compete Clauses 2.0

Matt Worley, Esq.

Back in June I wrote an article about the importance of careful drafting of non-compete agreements for key employees:  2014/06/drafting-non-compete-clauses-to-ensure.html.  A recent Michigan Court of Appeals decision illustrates this point perfectly.  Generally, these agreements not to compete are enforceable when they protect the employer’s reasonable competitive business interests and when they are reasonable in duration, geographical scope, and line of business.

In September, the Court of Appeals struck down a non-compete clause that prohibited the former employee from working for any company that “makes or sells any products competitive with a product offered by the company.”  While this may sound like typical language in a non-compete clause, the Michigan Court of Appeals determined it to be overly broad and unenforceable.

In that case, Defendant was a former employee of Plaintiff who resigned to go work for another company.  Both companies manufactured and sold “material handling equipment,” i.e. conveyor equipment.  Plaintiff argued that Mr. Sparling violated his two year non-compete by working for a competitor, Lewco.

The court held that the non-compete was unenforceable because it prohibited defendant from working for any company that offers even a single product that is “competitive” with a product offered by plaintiff.  This prohibited defendant from working for any company that is even in remote competition with plaintiff, and was therefore unreasonably restrictive.

The court went even further and held that Lewco was not even a competitor of plaintiff.  It reasoned that because Lewco sold primarily standard conveyor equipment, whereas plaintiff sold specialized and custom conveyor equipment, they were not competitors.

This recent case is Huron Technology Corp v Albert Sparling, Unpublished Michigan Court of Appeals Opinion No. 316133, 

http://publicdocs.courts.mi.gov:81/OPINIONS/FINAL/COA/20140911_C316133_31_316133.OPN.PDF.

This case demonstrates how imperative it is to carefully draft contract language in non-compete agreements.  The language in this case was so similar to what is commonly used, but slightly tweaked, and the effect of that change is that the court found it unreasonably restrictive and unenforceable. 

If you own a business and are concerned about protecting your interests, contact the business law and litigation experts at Fausone Bohn, LLP to assist you with drafting your business contracts.  You can reach me at 248/380.3312 or by email at mworley@fb-firm.com.