Understanding Non-Compete Agreements in Business Disputes

Safeguarding your company’s confidential information and client relationships should be your main priority as a business owner. However, many companies fail to establish protocols for new hires and business partners to sign non-compete agreements.

While it’s not pleasant to consider, most business relationships eventually come to an end. When they do, you want to ensure you’re protected by carefully drafted, enforceable non-compete agreements. These agreements prevent former employees or partners from engaging in activities that could harm a company’s interests.

What Are Non-Compete Agreements?

Non-compete agreements are legally binding contracts designed to restrict individuals from working in competing businesses or industries after leaving their current employer. They aim to protect a company’s trade secrets, proprietary information, and client base by limiting where and how an individual can work post-employment.

Clauses in these agreements can specify the duration, geographic area, and scope of restricted activities, providing businesses with a legal tool to prevent unfair competition. However, in order to be enforceable, these agreements must be drafted with clearly defined terms and reasonable restrictions.

Michigan State Laws Governing Non-Compete Agreements

Michigan’s state laws place constraints on the enforceability of non-compete agreements, restricting what is considered a “reasonable competitive business interest.” And its primary purpose must be to protect legitimate business interests, such as trade secrets or customer relationships – within reason.

Navigating Michigan’s laws requires careful attention to these restrictions. Businesses should consult with counsel to ensure these agreements are tailored to meet legal standards while effectively protecting their interests. Otherwise, courts may invalidate agreements with overly broad terms.

Common Legal Disputes Involving Non-Compete Agreements

Disputes over non-compete agreements arise when former employees or business partners believe that the terms of agreements are too restrictive or were unfairly agreed upon. Common disputes include arguments over the enforceability of the agreement, especially if an individual feels it limits their ability to earn a living.

Employers need to understand how these disputes are viewed by the courts. We suggest working with a business attorney who can draft reasonable and justified non-compete agreements to help avoid litigation. To learn more about handling disputes in business contracts, visit our article on Addressing Disputes in Business Contracts.

Impact of the FTC’s Proposed Non-Compete Ban on Michigan Businesses

On April 24, 2024, the Federal Trade Commission (FTC) announced its Final Non-Compete Clause Rule (“Final Rule”) that would ban non-compete clauses in employment contracts across the United States. This new regulation, as proposed, would supersede state laws, including those in Michigan, to the extent they conflict with the federal rule (16 C.F.R. § 910.4.). The FTC’s proposed ban is a significant development for businesses that rely on non-compete agreements to protect their interests.

However, it’s important to note that on August 20, 2024, a federal court set aside the Rule and held that the FTC cannot enforce the Rule. This ruling applies nationwide.? Businesses in Michigan should be aware of these changes in the law, its current status, and consider how this federal law could impact their existing contracts and future hiring practices.

Ensure Your Non-Compete Agreements Meet Legal Standards

Navigating this new regulatory landscape requires careful legal consideration. Companies should consult with a business law attorney to understand how the FTC’s proposed ban might affect their non-compete agreements if it is ultimately enforceable and what steps they need to take to ensure compliance. For expert advice and guidance on protecting your business in the State of Michigan, consult with our business law attorneys.