Non-Compete Agreement Considerations for Employers

This is Enrico Schaefer. Welcome to Internet Law Radio.  I am an internet law attorney specializing in a variety of technology and internet law issues ranging from cybersquatting to trademarks to copyrights to non-compete and trade secret agreements.  Today, we’re going to be talking a little bit about non-compete agreements.  And we’re going to be talking about those agreements from the employer perspective. 

When you are drafting a non-compete agreement, there are a number of things that you need to consider from the employer point of view.   In Michigan and many other states, non-compete agreements are considered enforceable to the extent they are reasonable and support a legitimate business purpose.  So, it’s really important when you’re drafting your non-compete to understand who’s the employee that’s going to be signing it, and how are you going to explain to a court if there should be non-compete litigation or a lawsuit to enforce a non-compete agreement.  What are you going to tell the judge is your explanation for needing this non-compete agreement?  And, although the bar is not particularly high for that particular element, you need to be able to explain, and it’s best if the rationale is at least suggested, if not, expressed in the non-compete agreement itself. 

So, let me give you some examples.  If you are in a market segment, say, technology or internet related market segment, and you’ve got a number of engineers who are building applications for you for the web and you’re going to have those engineers sign a non-compete agreement.  If you’re technology and your development is proprietary, there’s a whole number of things that you need to be considering, including making sure the copyrights are assigned to the company, making sure that all inventions are being assigned to the company by way of a general agreement.  However, you’re also going to potentially want to keep that engineer from going to your competitor, and keeping an employee from going to a competitor becomes even more important the fewer competitors there are in the market.

A non-compete agreement could not only be drafted to indicate that your employee cannot work for a competing company directly or indirectly for a period of years, but to also spell out the unique nature of that employee’s employment.   So, while a lot of boilerplate or non-compete agreement forms out there are just simply completely generic, you can do better than that in your drafting.  You can say, for instance, that so-and-so is a technology manager at your company and is involved in a variety of issue ranging from creating and implementing html code, database code, other technology applications, and application development for your company on proprietary process that relate to the strategic direction of your company.  And then, when you go in front of the judge, if you should have to sue for violation of the non-compete, you could explain that the very things that are in the non-compete agreement support the legitimate business purpose. 

So, non-compete drafting can be done on a form or boilerplate basis, but you shouldn’t do that if you’ve got some funds to spend to get a couple further steps up the ladder.  You should tailor your non-compete to the specific employees involved.  You need to be able to show the legitimate business purpose as just one of the elements, which will be required if you should ever have to file a motion for injunction, for a preliminary injunction or a temporary restraining order, for instance, asking that the court order that the employee cease working for a competitor. 

In the next episodes, we’ll be talking more about non-compete agreements and what is required in order to make them enforceable in non-compete agreement litigation, if you should have to go to court.

For Internet Law Radio, my name is Attorney Enrico Schaefer signing off for today.  We’ll see you next time.

Comments

[Non compete Agreement in Michigan]

Many people still think that Michigan law somehow makes non-compete agreements illegal. This is not true. Non-compete agreements are legal in Michigan as long as they are reasonable in scope and duration. Michigan is like many other states that have changed their view of non-compete agreements between employers and employees. While they used to be considered mostly unlawful, they are now considered to be mostly lawful.

[consideration for non-compete agreement]

Whether consideration for non-compete agreement is required varies state by state. Some states require separate consideration in order for a non-compete agreement to be enforceable. State law varies on this issue so check with a non-compete lawyer to learn more.

[Enrico Schaefer]

Drafting a non-compete agreement is very state sensitive. Because some states will reform a non-compete agreement that is overly broad, you can draft no competes in those states broadly. In other states, the court will strike the whole agreement if it is too broad in scope. So drafting a non-compete contract too aggressively will shoot down the whole agreement.