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A Better Partnership

Ahead of the Curve Auto Supplier Blog

July 09, 2012

Proposed Legislation on Non-Compete Agreements

Generally, a supplier who wants to protect its business interests will want to have what is casually termed as a “non-compete” or “non-solicitation” agreement in place for its employees, whether it be salespersons or key executives. Under Michigan law, an employer is entitled to obtain that type of an agreement from its employees to protect the employer’s reasonable interests. See Michigan Antitrust Reform Act, Mich. Comp. Laws Ann. § 445.774a(4)(a). Non-compete agreements allow an employer to bar its employees from engaging in a particular line of business or employment after the employee quits or is fired. The caveat is that the agreement must be reasonable in terms of duration, geographical area and type of employment. And, the law allows a court to take a “blue pencil” to the agreement to limit its scope for reasonable terms. Senate Bill 786, which was introduced in late 2011, seeks to significantly limit Michigan’s non-compete law. The Michigan Legislature is currently considering this proposed legislation, which would amend the Michigan Antitrust Reform Act to include a requirement that an employer cannot require, and a court cannot enforce, such an agreement as a condition of employment if the employer did not inform the employee of the requirement at or before the time of the initial offer of employment. Practically speaking, this new law would require the employer to advise a potential employee of the requirement to sign a non-compete agreement as a condition of employment. The intent behind this legislation is to protect employees who have little leverage after being hired to negotiate the terms of a non-compete agreement. Some criticism of this proposed legislation is that an employer cannot require employees to sign non-compete agreements as a condition of continued employment (after employees have been hired), which may lead to an employer requiring all new employees to sign non-competes as a condition of hire (since the employer only has one shot at it). Another criticism is a lack of exceptions within the proposed law. This criticism relates to an employment situation where an employee is hired in a position that does not require a non-compete but is later transferred to another position calling for a non-compete agreement. The employer may be powerless to force the employee to sign a non-compete in the new position. This legislation is expected to pass through the House and Senate this year and, if approved, will apply to non-compete agreements entered into after the effective date of the amendment.

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