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What are the ins and outs of noncompete agreements?

It is not unusual for businesses in Michigan and across the United States to include noncompete agreements in their employment contracts. Whether you are looking to sign a contract with a major corporation or you are responsible for creating a new hire contract, it is helpful to know what noncompete clauses are and how they work. 

Although these clauses are used in many industries, they are prohibited in some states, such as California. Furthermore, other states restrict their enforceability based on certain criteria. 

What is a noncompete agreement? 

In many industries, employees learn valuable information while on-the-job. In some cases, this information may be damaging to the company if it fell into the wrong hands. Noncompete agreements protect companies and the information they share with employees. This includes the following: 

  • Marketing plans 
  • Trade secrets 
  • Client or customer lists or information  
  • Upcoming products 
  • Business practices 
  • Operations  

Under a noncompete agreement, a terminated employee or an employee who resigns is unable to seek a position with a competing company within a certain geographical area and for a certain period of time. 

When is a noncompete agreement enforceable? 

In Michigan, noncompete clauses are only enforceable if they are considered reasonable. It is critical to have concise terms on the exact geographical area and time period that the employee is prohibited from seeking a position with a competitor. Contracts that seem unreasonable or over the top may be deemed unenforceable by state courts. The courts may also consider factors when determining whether a contract is enforceable, such as the type of business and information included in noncompete.