In November 2021, over 4.5 million Americans quit their jobs. That’s about 3% of the total workforce. It continues a trend that existed throughout 2021. Employees coming and going is a fact of corporate life, but the Great Resignation makes it more important than ever to protect your company from the dangers associated with departing employees.
Non-competition agreements are one of the most important tools to protect your business as employees come and go. But they’re commonly misunderstood and their effectiveness depends greatly on how they are drafted. “Non-competes” are generally viewed as a monolith, but courts actually treat the components of the non-compete differently when asked to enforce them.
The first component—and most important to your business—is a non-solicitation provision, which prevents a departing employee from taking customers with them to their new job. Under Michigan law, courts enforce non-solicitation provisions as written. As a result, it’s important for your non-solicitation provision to clearly define who is a customer. A properly-tailored definition becomes important when, for example, the “company” is comprised of several related entities or divisions. Your non-solicitation provision should ensure that an employee of one entity/division is not allowed to solicit a customer from another entity/division. This plays into defining who is a “customer.”
A non-competition provision prevents a departing employee from working for a competitor. Michigan law treats non-competition provisions differently from non-solicitation provisions. Whereas non-solicitation provisions are enforced as written, courts can rewrite non-competition provisions to make them “reasonable” in scope and duration. This “reasonableness” determination happens on a case-by-case basis, and there are no hard-and-fast rules that apply to what is reasonable. On the one hand, a company has the right to prevent unfair competition. On the other, a departing employee should not be forced to abandon his or her career or move across the country to make a living. However, with a properly crafted non-solicitation provision, you can protect yourself from the most significant risk that a departing employee poses to a business—stealing customers.
As people continue to quit their job in record numbers, it’s important to dust off any old “non-competes” to see if they protect your company the way you think. If it doesn’t or it’s unclear, you should either have it revised or understand that it will be an expensive proposition to have a court decide whether the agreement can be enforced.