Currently, noncompete agreements are generally enforceable in Michigan. Noncompete agreements are contractual agreements that limit an employee’s ability to work for a competing company after leaving his or her current employer. In Michigan, these types of agreements are common, particularly in industries such as technology, healthcare, and manufacturing.
In Michigan, noncompete agreements are subject to certain restrictions. For example, to be enforceable, agreements must be:
- reasonable in the length of time an employee cannot compete
- reasonable in the limitation on an employee from competing
- there must be a legitimate business interest (such as protecting trade secrets or preventing unfair competition)
If a Court finds that a noncompete is unreasonable or not supported by legitimate business interest, it may refuse to enforce the agreement.
Noncompete agreements are disfavored because they limit workers’ ability to find new employment. The Federal Trade Commission (“FTC”) has estimated that the banning of noncompete agreements could increase wages by $300 billion and expand career opportunities for about 30 million Americans. On January 5, 2023, the FTC proposed a new rule that would ban employers from imposing noncompete agreements on their workers.
The FTC’s proposed rule would generally prohibit employers from using noncompete clauses. Specifically, the FTC’s new rule would make it illegal for an employer to:
- enter into or attempt to enter into a noncompete with a worker;
- maintain a noncompete with a worker; or
- represent to a worker, under certain circumstances, that the worker is subject to a noncompete.
The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompete agreements and actively inform workers that they are no longer in effect.
The FTC is accepting comments from the public on the new rule until March 30, 2023. After that, the FTC should be issuing a final rule likely banning noncompete agreements.
Julie A. Gafkay is a civil rights attorney with an office in Saginaw for the past 20 years. She attained her law degree from Whittier Law School in 1995 and her undergraduate degree from James Madison College at Michigan State University in 1992. She is a past president of the Saginaw County Bar and Women Lawyers Association of Michigan. In 2019, she was awarded the Champion of Justice award from the State Bar of Michigan.
