Avoid the headaches of noncompetition clauses in employment contracts BEFORE you sign.

May 14, 2021 | Employment, General Interest

Most workers in Michigan are “at will” employees, meaning that there is no contract between them and their employer. The employment is said to be “at the will” of the employee and employer—so either one can, for any legal reason, terminate the employment relationship at any time. This provides incredible flexibility to both sides, but the tradeoff is that there can be no long-term stability in the relationship. That is where the employment contract comes in. Both the employer and the employee trade the flexibility of being able to end the employment relationship at the drop of a hat for longer-term stability.

Usually, an employment contract is for a fixed term, and it cannot be terminated by one side unless the other party has “breached” or violated the contract’s terms in some way. A contract provides some stability for both the employer and the employee, in that both sides know just how long the employment relationship ideally will last, and they can always choose to extend or renew the contract if things are going well. Another advantage is that the specific terms of the working relationship and what is expected from both boss and worker is spelled out in the contract, usually in detail. This can help avoid confusion or ambiguity involving issues such as compensation and benefits.

From the employee’s perspective, perhaps the biggest downside with signing an employment contract is the so-called noncompetition clause or “covenant not to compete.” This is a term in the contract which typically provides that the employee cannot “compete” with the employer for a number of years after the employment relationship ends—whether it ends on good terms or not. These clauses also usually say how far away a former employee can work from the employer’s business locale, and that distance can range from a few miles to hundreds of miles, or even further.

Covenants (agreements) not to compete are enforced by Michigan courts so long as they are “reasonable” in terms such as the time and distance involved. The results can be very harsh for the former employee, who may be forced to move hundreds of miles away, or even to a different area of the country, from his former workplace in order to work in his or her chosen field. (And the rapidly growing impact of video conferencing on the workplace may make geographical employment restrictions even harder for employees.)  I cannot tell you how many times a former employee has come to me to try to “get out” of the impact an agreement like this has caused them on their ability to get a new job, saying they did not really know what they were agreeing to when they signed the contract, but I can rarely do much for them. After all, they did sign the contract of their own free will, and the courts are not in the business of making sure people escape from their own adverse business decisions.

Before you sign any employment contract, you should have it reviewed by a good lawyer. He or she may be able to help you negotiate some of the more onerous terms of the contract, and in this time of employee scarcity, you may have more negotiating power than you think. Spending a few bucks to get an attorney’s help early in the process can sure save you a lot of headaches and heartaches down the line.

The time to make sure you can live with the consequences of a covenant not to compete is BEFORE you sign the deal; after the ink is dry, it is too late. Let us help you before you sign any employment contract. Call us at 833-NEEDLAW.