Non-compete agreements are widely used in many industries. They restrict employees from working for a competitor or starting a competing business within a specific timeframe or geographic area after leaving. These agreements protect businesses by preventing employees from taking valuable information, like trade secrets, to a competitor. However, recent legal challenges have raised questions about the future of non-compete agreements, especially after the Federal Trade Commission (FTC) proposed a ban on them. Now, employers and employees are watching closely to see what happens next.

What Happened to the Ban on Non-Competes?

In January 2023, the FTC proposed a rule to ban non-compete agreements across most industries. The FTC argued that these agreements limit workers' freedom to change jobs and reduce competition in the labor market. They also claimed that non-competes drive down wages and restrict innovation. If implemented, the rule would have ended the use of non-compete clauses for around 30 million workers across the U.S.

However, the proposed ban was challenged almost immediately. Critics of the rule argued that non-competes are necessary to protect sensitive business information and client relationships. In August 2024, a federal judge issued an injunction, halting the FTC's rule from going into effect. This decision has put the ban's future on hold while the legal battle continues. Non-compete agreements remain legal, and state laws and court decisions still govern their use.

In Michigan, non-compete agreements are generally enforceable but must meet specific criteria to be valid. For example, they must protect a legitimate business interest, such as confidential information or customer lists, and be reasonable regarding the period and geographic area covered. Courts in Michigan may strike down non-compete agreements if they are too broad or unfairly restrict an employee's ability to find new work.

What This Means for Your Business

The future of non-compete agreements is uncertain, but they remain legal in Michigan for now, subject to limitations. If your business currently uses non-competes, it's essential to ensure they comply with state and federal laws. Michigan courts generally enforce non-competes if they are reasonable and protect legitimate business interests, such as protecting trade secrets or preventing the loss of customers to competitors.

However, even in states like Michigan, where non-competes are enforceable, courts have become more cautious about upholding overly restrictive agreements. This means your non-compete agreement should be narrowly focused to protect your specific business interests without imposing unnecessary limits on an employee's ability to find work. Agreements that are too broad in duration, geographic scope, or job duties could be challenged in court and potentially invalidated.

Businesses should also consider alternative legal tools to protect their interests. Non-disclosure agreements (NDAs) can protect confidential information without restricting employee's job options. Non-solicitation agreements can prevent former employees from contacting your clients or poaching other employees, offering protection without the legal complications that non-competes now face.

Get Reliable, Up-To-Date Business Law Advice 

If you are unsure whether your business agreements comply with current laws or are worried about how legal changes could impact your contracts, speak with legal counsel. Schedule a free consultation to review your non-compete agreements and explore alternatives that might better suit your business needs.