Non-Compete Agreement 2.0
Back in June, I wrote an article about the importance of carefully drafting your non-compete agreement for key employees. A recent Michigan Court of Appeals decision illustrates this point perfectly. These agreements are enforceable when they protect a reasonable competitive business interest; are reasonable in duration, geographical scope, and line of business.
Huron Technology Corp. v Albert Sparling (2014)
In September, the Court of Appeals struck down a non-compete clause that prohibited the former employee from working for any company that “makes or sells any products competitive with a product offered by the company.” While this may sound like typical language in a non-compete clause, the Michigan Court of Appeals determined it to be overly broad and unenforceable.
In that case, titled “Huron Technology Corp. v Albert Sparling (2014)”, Defendant was a former employee of Plaintiff who resigned to go work for another company. Both companies manufactured and sold “material handling equipment,” i.e. conveyor equipment. Plaintiff argued that Mr. Sparling violated his two-year non-compete by working for a competitor, Lewco.
The court held that the non-compete agreement was unenforceable because it prohibited the defendant from working for any company that offers even a single product that is “competitive” with a product offered by the plaintiff. This prohibited the defendant from working for any company that is even in remote competition with the plaintiff and was therefore unreasonably restrictive.
The court went even further and held that Lewco was not even a competitor of the plaintiff. It reasoned that Lewco and the plaintiff are not competitors. Lewco sold primarily standard conveyor equipment, while plaintiff sold specialized/custom conveyor equipment.
Carefully Draft Your Non-Compete Agreement
This case demonstrates how imperative it is to carefully draft the contract language in a non-compete agreement. The language in this case closely resembles commonly-used language, with some slight tweaks. The court found that change unreasonably restrictive and unenforceable, resulting in an effect.