Basics of Non-Compete Law in Michigan

Michigan is one of the states that permits enforcement of non-compete agreements, but the enforceability of any specific agreement depends heavily on whether it meets the requirements of the Michigan statute and satisfies judicial standards for reasonableness. For both employers drafting agreements and employees who have been asked to sign them, understanding how Michigan law actually applies to non-competes is essential.

Michigan’s Non-Compete Statute: MCL § 445.774a

Michigan’s non-compete statute, MCL § 445.774a, provides that an employer may obtain a non-compete agreement from an employee, but only to the extent the agreement is reasonable and narrowly tailored to protect the employer’s reasonable competitive business interests. The statute authorizes courts to reform—that is, modify—an overly broad agreement rather than void it entirely, which means Michigan courts will often enforce a scaled-down version of a non-compete rather than throwing it out.

What Makes a Michigan Non-Compete Reasonable?

Michigan courts assess reasonableness by examining three core factors:

1. Duration: How long does the restriction last? Michigan courts have generally upheld restrictions of one to two years. Restrictions of five years or more face much greater scrutiny and are more likely to be found unreasonable.
2. Geographic scope: How broadly does the restriction cover geography? A restriction tied to the specific markets where the employer actually operates is more defensible than a nationwide or global restriction.
3. Legitimate business interest: Does the restriction protect a specific, articulable interest—such as trade secrets, confidential customer relationships, or specialized training—rather than merely preventing competition?

Legitimate Business Interests Michigan Courts Recognize

Michigan courts have found the following to constitute legitimate business interests sufficient to support a non-compete:

• Trade secrets and proprietary technical information
• Confidential customer lists and customer relationship data
• Specialized training provided at the employer’s expense
• Goodwill with customers that the employee developed on behalf of the employer
• Proprietary business processes and formulas

Employers cannot use a non-compete simply to prevent an employee from competing in the general labor market. The restriction must be connected to a specific interest that the law recognizes as protectable.

The Blue-Pencil Rule in Michigan

Michigan courts apply a blue-pencil rule that allows judicial modification of overbroad non-compete provisions. Under this approach, a court can reduce an unreasonable geographic scope, shorten an unreasonable duration, or otherwise narrow the restriction to make it enforceable, rather than voiding the entire agreement. This means that even imperfectly drafted agreements may receive partial enforcement—which is one reason why employers should still invest in carefully drafted non-competes rather than relying on courts to fix their drafting errors.

Non-Competes in the Sale of a Business

Non-compete agreements that arise in connection with the sale of a business are treated more favorably by Michigan courts than employment agreements. When a seller agrees not to compete with the buyer’s business after the sale, courts recognize that the seller has received substantial consideration and apply a more lenient reasonableness standard.

Federal Developments: The FTC Non-Compete Rule

In 2024, the FTC issued a rule that would have banned most non-compete agreements for employees nationwide. The rule was challenged in federal court and blocked by a federal district court in Texas before it took effect. The legal landscape surrounding potential federal non-compete restrictions continues to evolve, and businesses should monitor this area carefully.

When to Contact an Attorney

Non-compete issues are intensely fact-specific. Whether an agreement is enforceable, whether a particular employment opportunity triggers a non-compete, and what remedies are available if a former employee violates one all depend on the specific language of the agreement and the facts of the situation. Contact Revision Legal’s non-compete attorneys before making employment decisions that may implicate your existing agreements.

How to Respond to a Non-Compete Demand

When a former employer sends a cease-and-desist letter or files for a temporary restraining order based on a non-compete agreement, the timeline for decision-making is compressed. Courts can issue TROs within 24-48 hours of filing, which means that a company or individual who waits to respond can find themselves under a court order before they have had a chance to consult counsel.

The first step is to get the agreement in front of an attorney immediately. The attorney will assess whether the agreement meets Michigan’s reasonableness requirements, whether the claimed business interest is protectable under MCL § 445.774a, whether the duration and geographic scope are enforceable, and whether there are procedural defects in the agreement itself—such as lack of consideration, failure to provide a copy of the agreement, or modifications that may have invalidated the original terms.

Even a facially valid non-compete agreement may not be enforced in every situation. If the employer terminated the employee without cause, courts in some jurisdictions have declined to enforce non-compete agreements against employees who were laid off involuntarily. Michigan courts have not uniformly adopted this position, but the circumstances of separation are often relevant to the equitable balancing that courts perform when deciding whether to grant injunctive relief.

Drafting Non-Compete Agreements That Will Be Enforced

For employers, the time to think about enforcement is before the agreement is signed, not after the employee leaves. A non-compete that has not been carefully drafted for the specific employee, role, and business context will often fail. Boilerplate language copied from a template is particularly prone to failure because it cannot account for the specific legitimate business interests at stake.

Michigan courts will sometimes blue-pencil an overbroad agreement to make it enforceable rather than void the entire provision. But an employer who relies on this should understand that the reformed provision may protect significantly less than intended. The better approach is to draft an agreement narrowly tailored to the genuine business interests at risk from this particular employee’s departure.

Key drafting considerations include: defining the specific information that qualifies as confidential or proprietary, identifying the specific customers or customer segments with which the employee interacted, tying the geographic scope to the actual markets in which the employer operates, and selecting a duration that reflects the genuine period needed to protect the business interest at stake.

Non-Compete Agreements in Acquisition Transactions

When a business is sold, non-compete agreements are a standard component of the deal documents. The seller’s principals agree not to compete with the buyer’s business for a defined period. These agreements receive more favorable treatment from courts than employment non-competes because the seller has been compensated for the goodwill that the non-compete protects—the purchase price incorporates the value of the seller’s agreement not to undermine that goodwill through competition.

Revision Legal’s non-compete attorneys draft and review non-compete provisions in both employment and acquisition contexts. Contact us today to discuss your non-compete matter.

Contact Revision Legal’s non-compete attorneys before making employment decisions that may implicate your existing agreements. Whether you are an employer drafting an agreement or an employee evaluating whether to accept a new position, our attorneys provide the specific guidance you need under Michigan law.