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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 geographic area 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 many realize. Every situation is different, but 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 likely will not be enforced as written. Similarly, while a six-month or twelve-month restriction may be enforced, a 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 competitive 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 legitimate business 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—or if the information provided is known to the public and thus not actually confidential—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 general policy of requiring its employees and officers to sign non-competes. But if it forgot to give one to a particular employee—or if it gave the employee a non-compete but he or she never 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, 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 compensation or 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 may 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 substantially 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—or keeping—a new job position.
At the same time, a badly drafted non-compete need not derail you career. An employer may wave around a non-compete agreement—perhaps even one that is patently 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 surprisingly tricky to enforce. This is why sensible employers will often compromise rather than litigate. With some creative thinking and bold advocacy from a good non-compete lawyer, you may be able to find a solution that works for both parties.
And in those instances where a conflict is truly inevitable, you may, depending on the individual facts and circumstances of your case, be able to beat your non-compete.