What every employee should know about non-competition and non-solicitation contracts

A non-compete contract is an agreement signed by an employee agreeing that they will not engage in a certain job within a certain geographic area for a certain period of time after they resign or are terminated. Likewise, the non-solicitation contract obliges the worker not to contact the employer’s clients or the rest of the workers under the same conditions. These restrictive contracts have become more prevalent in Michigan, especially in the technology sector, where companies believe they have legitimate business interests that must be protected.

Non-compete and non-solicitation contracts created a number of very difficult problems for employees. And it’s not just higher-level workers who are often forced to sign such contracts. It should surprise no one that companies wield enormous influence in forcing business owners, high-level executives, and low-level workers to sign these restrictive contracts.

Many employers require the employee to sign such an agreement to obtain employment, or after being hired, to keep their job. Unfortunately, most employees believe they have little or no influence and enter into these contracts with little thought, review, or negotiation. In too many cases, employees are willing to do anything to secure a good job and naively assume they will work there forever. They are wrongly informed that such contracts are unenforceable, or assume that non-competition will never affect them.

Much of the mythology and confusion surrounding non-competition issues today is because Michigan’s view of non-competition has changed over the past two decades. Michigan courts used to view noncompetition as anticompetitive and therefore inapplicable in Michigan. This all changed in 1987 when Michigan passed Section 4(a) of the Antitrust Reform Act. It is now Michigan public policy to enforce reasonable non-compete provisions in employment contracts.

So what do you do if your boss or investment group presents you with a non-compete or non-solicitation agreement? Often the non-compete contracts presented to employees are extremely broad and effectively bar employees from working in the entire market if their employment ends for any reason. Other non-compete agreements may allow the employee to work in his chosen field of expertise, but only if he is willing to relocate to a different state, beyond the employer’s competitive territory.

Here is my list of the top 10 tips for employees if you find yourself facing the barrel of a non-compete or non-solicitation agreement:

1. If you are considering signing a non-compete or non-solicitation agreement, be prepared to live with it as written. You may not be able to afford a short action to attack it. Even if you can fight the contract in court, judges have a wide range of discretion and are unpredictable in how they will handle one of these contracts.

2. Do everything possible to avoid signing a non-competition or non-solicitation contract. Take a starting position that you won’t sign and see how flexible your employer can be. If they love you enough, they may be willing to live with a trade secret agreement in place.

3. If you are forced to sign a non-compete agreement, negotiate the terms as narrowly as possible. Make sure it is reasonable in scope (duration, market description, geographic region).

4. Remember, the employer must have a legitimate business interest to protect. Force the employer to tell you exactly what he is trying to protect. Typically, this means protecting trade secrets, confidential information, or an investment in an employee’s training and skills. Get it in writing. If you are never exposed to such information or receive the training, you will be in a good position to have the non-competition declared invalid.

5. If you are forced to sign a non-compete agreement, get additional compensation, a signing bonus, or compensation for a period after your employment ends (separation package).

6. Try to avoid non-compete language, in favor of a non-solicitation clause, which prevents you from instigating contact with your employer’s clients if you must leave. If worded correctly, this will still allow you to go to work for a competitor and also allow customers who contact you to be served by you in the future. It’s much easier for a new employer to isolate you from contact with certain clients than it is to find a position for you that doesn’t compete with your old employer.

7. If you are forced to sign a non-solicitation clause, be sure to distinguish between clients you bring to the employer and clients provided through your new employer. Just agree not to ‘solicit’ clients after you leave. Don’t agree to not serve them if they are looking for you or if they are already clients of your new employer.

8. Never agree to pay the employer’s attorney fees if you decide to challenge the non-compete agreement. Employees are often forced to go to court to ask the judge to limit the non-compete terms. You will have to pay your own attorney fees; you don’t want to have to pay for the employer’s attorney as well.

9. Monitor employees who leave the company while you are still employed there and determine whether or not the company is imposing non-compete terms against those employees. Companies cannot “perfectly choose” employees to enforce a non-compete clause. If you can show that the company failed to enforce the non-compete law against others, your non-compete law may become unenforceable.

10. Be sure to tell any potential employer if you have signed a non-compete agreement. It is no use getting a new job and having your new employer receive a threatening letter 30 days after your new employment. It’s best to be upfront and allow your new employer to attempt to negotiate the non-compete language in a way that will allow your employment.

Once an employee signs a non-compete agreement, the options become more limited to search for a new job. Yes, non-competition can be attacked in court. Yes, an employer must have a legitimate business interest to protect in order to support non-competition. Some non-compete terms are too broad or do not protect legitimate business interests. Courts must override any such non-competition or limit the terms to a more reasonable scope. However, employees are often not in a position to pay thousands of dollars to an attorney to challenge a noncompete in court. Such a lawsuit is the last line of defense for an employee seeking to challenge non-competition.

Employees must be extremely careful when entering into non-compete or non-solicitation agreements. Too often, employees convince themselves that they need the job so badly that they’re willing to sign anything. When the job doesn’t work out, those same employees may find themselves without employment prospects. Sophisticated employers specifically ask new job applicants if they have signed non-compete agreements, and many will avoid hiring employees who have signed them. Many prospective employers know that they will be viewed as “deep pockets” and will be prosecuted if they hire someone who is alleged to be in violation of a non-compete contract. These new employers bear liability if they benefited from the employee’s skills and customer contacts in violation of the non-compete law.

In today’s economy, and especially in the tech economy, no job is secure. Even if you are lucky enough to have an employment contract that requires the company to keep you on staff for several years, there is no guarantee of permanent employment in Michigan. I always tell my clients, I expect the best and plan for the worst. In other words, assume your job won’t work. As with many legal matters, a couple of hundred dollars spent up front for the advice of an attorney can save an employee thousands of dollars down the road and put that employee in a position for gainful employment if they lose their job. . When it comes to non-compete and non-solicitation agreements, an ounce of prevention really is better than a pound of cure.