Noncompete agreements: a practical--and enforceable--approach.

Highly mobile and sought-after executives and business professionals. Trade information and knowledge moving easily between jobs and regions of our country. Michigan-based firms with multi-state operations. An intense competitive landscape. The growth of the Internet and interstate commerce. All of these are excellent reasons why businesses, and their employees, need to be better versed in the structure and enforceability of noncompete agreements.

In Michigan, the validity of noncompete agreements is governed by section 4a of the Michigan Antitrust Reform Act, a statute passed by the Legislature in 1987, as well as the many cases interpreting that statute. Together, the statute and the case law set forth the parameters defining those agreements that are enforceable and those that are not.

The statute seeks to strike a compromise between the protection of an employer's competitive business interests and an employee's right to earn a living. As such, courts interpreting noncompete agreements focus their analysis in four areas:

* The agreement must protect a company's reasonable competitive business interest. Among the pertinent factors in determining whether the agreement protects a reasonable competitive business interest are the employee's position in the company, and the level and amount of specific competitive information acquired during employment, which may include such areas as trade secrets or special training conferred on the employee (see page 32).

* The agreement must be reasonable as to the length of time the employee is prohibited from working in the line of business. The enforcement of agreements of one or two years in duration is not uncommon.

* The agreement must be reasonable as to the geographic area the employer seeks to prevent the employee from working in. While the employee's immediate area of employment would most likely be upheld as a reasonable territorial restriction, wider restrictions require a greater showing that the agreement seeks to protect the employer's reasonable competitive business interest.

* Finally, the agreement's restrictions on the type of employment or line of business must be reasonable. Courts will look less favorably on deliberately vague, over-reaching or "blanket" agreements.

Enforcing the agreement

Michigan courts have enforced and will enforce well-drafted agreements on a case-by-case basis, with remedies that include the issuing of restraining orders or injunctions and the awarding of monetary damages. It is important to note that even if one condition of a noncompete agreement is deemed unenforceable, the remainder of the agreement may be valid and enforceable. Businesses of all types. especially those with multi-state operations, must understand that the rules for noncompete agreements vary from state to state. What's enforceable in Michigan may not be in one of our neighbor states. Moreover, employers should not delay in acting on known breaches of a noncompete agreement. The longer an employer delays between the discovery of unlawful competition and pursuit of a legal remedy, the weaker becomes the employer's request for injunctive relief.

A preventive law approach works best

Like any contract, noncompete agreements define the expectations of each party and are subject to negotiations, depending upon the bargaining strength of the parties. Employers should have legal counsel help draft these agreements to ensure that they meet the employer's expectations and are enforceable. Employees, on the other hand, should review such agreements carefully to ensure that they understand the restrictions on future employment should they ever leave the company. Also, be sure to remind those leaving your company of their legal obligations during any exit interview. In this way, employers will strike a favorable, yet serious business tone, while best ensuring that any noncompete agreement can be enforced, should the need arise.

Ruben Acosta is a founding partner at Williams Acosta PLLC in Detroit, a member of the Detroit Regional Chamber.

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