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Drafting an Enforceable Non-Compete Clause for Your Business

Apr 9 | 2015  by

An enforceable non-compete clause is a key part of the toolbox for business owners looking to protect their interests. For business owners, large or small, it’s important to draft a strong non-compete clause that can hold up in court as reasonable and enforceable.

What is a Non-Compete Clause

Typically, two situations would require a non-compete clause. First, upon the sale of a business, this tool can prevent the seller from competing with the person who purchased the business. Second, they’re used to prevent key employees who leave the company from going to work for a competitor or taking the business’s customers with them.

However, not all non-compete clauses are enforceable. In order to be enforced, a particular clause must be “reasonable” under the circumstances. It is important that you and your attorney clearly understand the law when carefully drafting these clauses. Otherwise, a court may strike down a poorly drafted clause that it finds unreasonable.

When determining if a particular clause is reasonable, and therefore enforceable, a court looks primarily at two questions – is the clause reasonable (1) in its duration, and (2) in its geographic scope? Courts take an in-depth look at the facts and circumstances of each situation when determining reasonableness.

Unenforceable Non-Compete Clause

You may have heard about Jimmy John’s making their workers and drivers sign non-compete agreements, which could very well prevent them from going to work for Subway for example. Jimmy John’s use of these agreements has stirred up controversy, but it has also drawn the attention of the New York Attorney General’s Office, which has launched an investigation. As a business owner, large or small, you don’t want to draw that kind of negative attention.

Michigan courts have, in some situations, enforced non-compete agreements for as long as five years. When reviewing the geographic scope, courts will typically see if the clause mirrors the territorial scope of the business. If so, the chance of upholding it is higher.

For example, there’s a local business that serves customers within a 20-mile radius. A non-compete clause restricting someone in the whole state would be too broad and unenforceable.

Contact Fausone & Grysko, PLC Today

Are you a business owner concerned that key employees will leave to compete with you? If so, you will want an enforceable non-compete clause in your purchase agreement and/or employment agreements. Don’t copy and paste off the internet, this will produce a non-enforceable agreement leaving your business interests unprotected.

If you want to protect your business assets, contact Fausone & Grysko, PLC today for a free consultation. You can reach us at  (248) 380-0000 or online at www.fb-firm.com.