Sheehan & Associates, P.L.C.

The increasing use of non-competition agreements

Many Michigan residents associate non-competition agreements with senior executives who could damage their employers if they were to take their inside knowledge to a competitor. However, court records indicate that even fast food workers, hotel maids and nail stylists are sometimes prevented from seeking similar jobs elsewhere by this kind of restriction. This trend led some lawmakers to call for investigations by the Department of Labor and the Federal Trade Commission in October 2014.

Non-compete agreements are often inserted into employment contracts when employees have access to trade secrets or other valuable information, but they may also be used when workers receive costly training or have a loyal customer following. Executives are usually well compensated and generally have the means to contest the validity of this type of agreement in court, but workers who receive lower wages rarely have the resources necessary for a protracted legal battle. These employees often take lower-paying positions in other fields due to concerns about being sued.

The way non-competition agreements are treated by the courts varies from state to state. A handful of states ban this type of employment restriction altogether, but most allow judges to either strike out or rewrite clauses in an employment contract that violate state laws. The issue has come to the attention of legislators due to fears that the spread of this type of restriction may lead to lower wages and less freedom in the job market.

A well-drafted employment contract protects the interests of employers and the rights of workers, but it must conform with applicable labor laws and regulations. An attorney with experience in this area could analyze such agreements to determine their validity and regulatory compliance. An attorney may also offer advice to employers who share sensitive information with workers, or operate costly training programs, and are concerned about the enforceability of a non-competition clause.

Source: ABC News, "Scrutiny on Worker Non-Compete Deals", Ray Henry, January 03, 2015

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