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Litigation Blog.
The seasoned lawyers and litigators at The Rubinstein Law Firm are here to share their insights with you.

Can a non-compete agreement be invalid?

The legality of a non-compete clause can be tricky. Companies use them to prevent employees from going to work with the competition and they will usually bar an employee from taking work with a competitor within a specific geographical area. However, courts carefully scrutinize non-compete clauses, and a Michigan judge may rule that the clause is unenforceable if it runs afoul of a number of standards.

Per, non-compete clauses are valid when they protect the legitimate business interests of a company. Over the course of employment, a worker may establish relationships with clients who do business with the worker’s company. If the employee should go independent, a non-compete clause can forbid the employee from using those client relationships for his or her own business benefit. However, courts may find problems if a non-compete does not appear to have any legitimate business interest for existing.

Another problem non-competes run into is how reasonable their restrictions are. A non-compete clause restricts a person’s ability to find work and in many cases within a specific geographic location. Courts are unlikely to uphold these requirements if they are unreasonably burdensome on the employee. A judge may strike down a non-compete clause that restricts a worker’s employment options indefinitely, or if the clause applies to a geographical area outside where the company conducts business.

Bad timing can also derail a non-compete clause. Judges may decide not to recognize a non-compete clause if an employee signs it after being employed for a time. Usually, a non-compete agreement has value to an employee because agreeing to it helped grant that person employment in the first place. But if an employee signs a non-compete after employment is established, a company should give that employee added benefit for doing so.

Some states, like Oklahoma and California, outright ban companies from using non-compete agreements. Michigan, however, is not one of them. This means Michigan businesses are able to compose non-compete clauses that can stand up in court. Consulting with an attorney to make sure the non-compete is likely to pass muster in court can help increase the chances that a company’s non-compete clauses will be legally preserved.

This article is meant to educate readers on business and commercial law. It is not written to provide legal advice.