One of the most effective means to protect a business’ sensitive information and customer relationships is a well-drafted noncompete agreement. Michigan court decisions have confirmed this over the last two decades.

Because noncompetes restrain trade, they must serve a legitimate business need beyond the mere prevention of competition to avoid antitrust laws. A noncompete would be appropriate if you are trying to prevent an employee from stealing trade secrets or if you are trying to preserve the value of a business by retaining its relationships with customers.

Any business where employees develop close relationships with customers may have a legitimate need for a noncompete. A Michigan court recently upheld a covenant that prohibited a hair stylist from working for another salon within five miles of her former employer for one year.

Noncompetes must be tailored to serve a particular business’ needs. Many such agreements are limited to preventing former employees from soliciting existing customers for a certain period of time. Others may prevent employees from competing within a limited territory and time. A broad covenant runs the risk of not being enforced.

Confidentiality and nondisclosure agreements may especially benefit from noncompetition provisions. Michigan courts may enforce a noncompete against a former employee who joins a competitor if that employee had access to an employer’s confidential information as long as the restraint is reasonable in terms of time, geographic area, and line of business. However, a nondisclosure agreement standing alone is not likely to be enforced in the same situation without proof that the employee has actually used or disclosed the cconfidential information. Michigan courts have been reluctant to enforce nondisclosure agreements because of the mere potential for disclosure or use.