Non-compete agreements are enforceable – to the extent they are reasonable
This article is part of a McDonald Hopkins series on developments in restrictive covenant law that dives deeper into how employers can protect their business interests in light of state - and potentially federal - limitations, strategies for revising employers’ non-compete and non-solicitation agreements, and other topics that will help businesses navigate the changing landscape of employee restrictive covenants.
The Michigan Court of Appeals recently reiterated a common sentiment among courts across jurisdictions – “non-competition agreements are only enforceable to the extent they are reasonable.”
In Dillon Energy Services, Inc. v. Angela Asaro and Joseph Blahut, the court was tasked with considering whether or not to uphold a trial court’s order granting summary judgment in favor of Asaro and Blahut, both former employees of Dillon. The Court of Appeals reinforced what McDonald Hopkins regularly counsels – non-compete agreements must be reasonable in light of the work the former employee actually performed, and cannot simply prevent a former employee from competing in any capacity.
The non-competition agreement at issue prevented defendants from “rendering services” for a competitor of Dillon and the Court of Appeal found that the language was so broad as to prohibit any employment by the defendants with a competitor, and that was unreasonable. The court provided clear guidance regarding the enforceability of reasonable non-competition agreements:
- Non-competition agreements will be enforced when they reasonably protect employers against unfair competition, but not when they stifle all competition;
- Non-competition agreements will be enforced when they reasonably protect employers’ trade secrets, but not when they restrict an employee from utilizing general information obtained during their employment or generally knowns;
- Non-competition agreements will be enforced when they are reasonable as to the specific parties involved; and
- Non-competition agreements will not be enforced when they impermissibly restrain trade or extend beyond what is reasonably necessary to protect confidential information.
Ultimately, and key to the court’s decision to uphold the trial court’s order granting summary judgment in favor of the employees, “a non-competition agreement may reasonably forbid a former employee from exploiting confidential information, but it may not forbid a former employee from simply getting a job.”
Reminder to employers: Review your restrictive covenants and non-compete agreements
The Dillon case is a reminder to employers that while restrictive covenants, including non-compete agreements, are in most states enforceable, they must be reasonable. Employers may believe that they are protecting their business assets by having employees signed restrictive covenants, but if those covenants are unenforceable they are worthless. One of the experienced attorneys on the McDonald Hopkins Trade Secret, Non-Compete, and Unfair Competition Team can help employers confirm the reasonableness of their non-competition agreements. Please reach out to your McDonald Hopkins attorney for support in reviewing your agreements.
