Sheehan & Associates, P.L.C.

Noncompete agreements increasingly subject of lawsuits

Since 1985 the state of Michigan has enforced employee noncompete agreements to help businesses protect trade secrets, customer relationships, confidential information and the general value of a company.

In fact, nationwide, the practice of including noncompete clauses in employment agreements has become more common in the last decade, with noncompete clauses being enforced not only at the high executive level, but also with engineers, researchers, sales personnel and other employees.

Noncompete agreements are generally established when a person is hired. And while the terms of such an agreement can help protect the company doing the hiring, sometimes employees have a hard time breaking away and starting their own ventures.

Employers should also be very careful when drafting the terms of a noncomete agreement. According to The Wall Street Journal, noncompete agreements were the subject of 760 U.S. court decisions last year. That number represents a 61-percent increase since 2002.

Of course, many disputes over employment agreements are handled outside of court, and the majority of court opinions aren't published. That means the number of lawsuits is undoubtedly higher than reported.

The reality is that employers invest quite a lot in their employees, and noncompete agreements can help employers hold on to their investment. Even employees who break away from a company and are sued by their former employers end up starting new businesses that use noncompete clauses in employment contracts.

In any case, Michigan businesses with employment law concerns would do well to take the necessary legal steps to protect against risks inside and outside the company.

Source: The Wall Street Journal, "Litigation Over Noncompete Clauses Is Rising," Ruth Simon and Angus Loten, Aug. 14, 2013

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