Paul
Bohn, Esq.
A non-compete
clause is key part of the toolbox for business owners looking to protect their
interests. For business owners, large or small, it’s important to draft a
strong non-compete clause that can hold up in court as reasonable and
enforceable.
Non-compete
clauses are typically used in two situations.
First, upon the sale of a business, this tool can prevent the seller
from competing with the person who purchased the business. Second, they’re used to prevent key employees
who leave the company from going to work for a competitor or taking the
business’s customers with them.
However,
not all non-compete clauses are enforceable.
In order to be enforced, a particular clause must be “reasonable” under
the circumstances. It is important that you and your attorney clearly
understand the law when carefully drafting these clauses. Otherwise, a court may strike down a poorly
drafted clause that it finds unreasonable.
When
determining if a particular clause is reasonable, and therefore enforceable, a
court looks primarily at two questions – is the clause reasonable (1) in its
duration, and (2) in its geographic scope.
Courts take an in depth look at the facts and circumstances of each
situation when determining reasonableness.
You
may have heard about Jimmy John’s making
their workers and drivers sign non-compete agreements, which could very well
prevent them from going to work for Subway for example. Jimmy John’s use of
these agreements has stirred up controversy, but it has also drawn the
attention of the New York Attorney General Office, which has launched an
investigation. As a business owner, large or small, you don’t want to draw that
kind of negative attention.
Michigan
courts have, in some situations, enforced non-compete agreements for as long as
five years. When reviewing the geographic scope, courts will typically look to
see if the clause mirrors the territorial scope of the business. If so, it is more likely to be upheld. For example, if the business involved is a
local business that only services customers within a 20 mile radius, a covenant
not to compete that restricts the person in the entire state of Michigan is
probably too broad and unenforceable.
Are
you buying a business, or do you own a business and are concerned that key
employees may leave your business and compete with you? If so, you will want an
enforceable non-compete clause in your purchase agreement and/or employment
agreements. Don’t fall into the trap of simply copying and pasting a clause off
of the internet, which would likely produce a non-enforceable agreement that
leaves your business interests unprotected.
If you want to protect your business
assets, call a Fausone Bohn Michigan Business Attorney today for a
consultation. You can reach out at (248) 468-4536, or online at www.fb-firm.com.
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