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Five Ways Around a Noncompete
You’d love to find a new position, but there’s a not-so-small hitch: You signed a non-compete agreement. It says you can’t work for another company in the same line of business in the same region for six months, a year, maybe longer.
Are you stuck?
The good news is that non-competes are often negotiable and sometimes even beatable—more often than you might realize. Here are five common scenarios.
1. The Non-Compete is Too Broad
Many non-compete agreements are badly drafted. It’s shocking, really. Whether through overreach or sheer carelessness, it is not at all uncommon for a non-compete agreement to be far more restrictive than what the law actually allows.
Courts scrutinize non-competes to make sure they are reasonable in territory and duration. For example, if an employer does all its business in one city or county, a non-compete purporting to cover the entire state may not be enforced as written. Similarly, while a six-month or twelve-month restriction may be enforced, an employee non-compete lasting ten years is not likely to be enforced absent exceptional circumstances.
In Michigan, courts have power to cut an unreasonably broad agreement down to size. The difference between a reasonable agreement and an unreasonable one may be the difference between being accepting a great job offer and being forced to turn it down.
2. The Non-Compete Does Not Protect a Legitimate Business Interest
The point of a non-compete is to protect a company’s reasonable business interests. For example, companies have long used non-compete agreements to keep valuable confidential information from getting into the hands of competitors. Michigan courts also recognize customer relationships and company goodwill as protectable interests.
What a company may not do is use a non-compete to shield itself from lawful competition.
A non-compete may state that its purpose is to protect confidential information. But if the company never gave the employee access to such information, then the stated business interest is not being served by the agreement at all. Similarly, if a non-compete claims that its purpose is to protect customer relationships, but the employee never worked in a customer-facing role, it is unlikely that a legitimate interest is being protected.
3. No Non-Compete Was Ever Signed
Yes, this happens. Perhaps the employer has a policy of requiring employees and officers to sign non-competes. But if it forgot to give one to a particular employee—or if the employee received but never actually executed it—the employee cannot be bound.
The lesson here is that employees should keep careful records all employment documents, and when in doubt, ask the employer for a complete personnel file. If the employer cannot cough up a validly executed non-compete agreement, it has no business trying to restrict someone.
4. The Employer Screwed Up
A non-compete agreement is a contract between two parties, an employer and an employee. Both parties have a duty to hold up their end of the bargain. Generally speaking, if one party materially breaches a contract first, the other party is off the hook and has no further obligations under the agreement. Employers sometimes forget this point.
Suppose an employer wrongfully withholds sales commissions, or fails to grant agreed upon benefits after certain benchmarks are met. Or suppose the employer fires an employee in violation of a “for cause” termination provision of the employment agreement. Depending on the particulars of the situation, such actions could be a material breach that excuses compliance with the employee's non-compete obligations.
Along the same lines, the “unclean hands” doctrine may be invoked where a party acted wrongfully in relation to the relief sought. If an employer’s bad faith actions are what drove someone out of the company, it could be barred from obtaining relief against that person.
5. The New Job Position Does Not Actually Compete
Enforceable or not, a new position may not actually run afoul of a person's non-compete. Of course, a company may claim that an employee who leaves and takes a job having any conceivable relationship whatsoever to its business is guilty of "competing." But suppose the person has moved from a technical role to a sales role, or from a customer-facing role to a management role. Or suppose the person's new employer operates in a different industry niche from the old one. Depending on the facts and circumstances and the language of non-compete agreement, the person may not be "competing" at all.
You may have more options than you think.
Simply ignoring a non-compete is a bad idea. Many have learned the hard way what it is like to be on the receiving end of a court order barring them from taking a new job.
At the same time, a badly drafted non-compete need not derail you career. An employer might wave around a non-compete—perhaps even one that is unenforceable—to push its employees around, believing they will knuckle under at the prospect of litigation.
What employers do not want you to know is that non-compete agreements can be tricky to enforce. This is why sensible employers will often compromise rather than litigate. With some bold advocacy and creative thinking from an experienced non-compete lawyer, you may be able to find a solution that works for both parties.
Moreover, in cases where a conflict is inevitable, you may--depending on the individual facts and circumstances of your case--be able to beat your non-compete.