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

Establishing a legal non-compete agreement

Many small businesses ask their employees to sign a standard non-compete agreement. This document prohibits an individual from leaving your company and joining a competing firm.

To be effective in protecting your business interests, a non-compete agreement must be legally enforceable in Michigan.

Reasonable in scope, duration and skills 

If your company’s non-compete agreement is too broad, you may not win a legal challenge if you try to enforce its terms against a former employee. For example, the agreement must cover a reasonable geographic scope of local businesses only, which means he or she can legally work for a competing firm outside that jurisdiction. It must have a reasonable duration, often a year or two. Finally, the non-compete agreement cannot prevent an employee from using his or her acquired knowledge and skills to benefit a new employer.

Clear employee acknowledgment and signature

Many employers bury a non-compete agreement within an employee handbook, then ask new workers to sign a form indicating that they have read and will abide by all the handbook’s provisions. To ensure enforceability, create a separate legal agreement for the employee to read and sign, ideally in the presence of a witness or notary. This fulfills the legal requirement to show an employee knowingly agreed to the non-compete document.

Explicit about protecting business interests

Michigan courts require a non-compete agreement to specify the competitive business interests you want to protect and the employee’s role in handling those interests. You should include details about the types of confidential information the specific employee can access and note that he or she should not share this information with future employers. The non-compete agreement may not protect your business from all competition, but only from the spread of confidential trade secrets and damaged public goodwill.

To avoid issues of unenforceability, avoid using a one-size-fits-all non-compete agreement for your business. This document should shield your business model, trade secrets and investment in human resources, and to serve these purposes you should have it crafted specifically for the needs of your company, your industry and state law.