Restrictive covenants and the reasonableness standard

On Behalf of | Oct 30, 2020 | Retaliation Termination And Forced Resignations |

If you’re about to take a management or executive position with a new company, you’re likely going to asked to sign a lot of paperwork. Amongst them might be an employment contract or other agreements that not only specify what you are required to do while employed, but also what you can’t do after you leave employment. The latter are referred to as restrictive covenants. These restrictive covenants might seem harmless up front, but agreeing to them without careful consideration can cause issues for you in the future.

The enforceability of a restrictive covenant

Michigan law narrows restrictive agreements, including non-compete and non-solicitation agreements. Under the law, these agreements have to be reasonable in nature. What, exactly, does that mean? Several things, but perhaps most importantly is how the agreement restricts in terms of duration, scope, and actions. Those agreements that are so restrictive as to be oppressive likely won’t be enforceable. Therefore, an agreement that prevents employment in the same line of work within a 2,000-mile radius likely won’t be found to be reasonable.

How to look at reasonableness

One way to look at the reasonableness requirement is to articulate how the agreement is calculated to protect an employer’s competitive business interest. If your employer or former employer is unable to articulate how the agreement speaks to that interest, then it’s less likely to be deemed a legally enforceable agreement. This business interest must be clear and reasonable as to geographic and temporal scope, as well as the time of work being restricted.

Seek help dealing with your employment law matters

While new employees with a company need to carefully consider restrictive covenants and try to negotiate them to their favor, those who have recently left employ, perhaps even through retaliation or forced resignation, need to think about whether they can challenge the enforceability of their restrictive covenants. Fortunately, attorneys who are experienced in this area of the law may be able to assist you in protecting your interests.