Non-compete agreements are often enforceable under Michigan law, but courts may limit their scope to ensure that they are not “unreasonable” and do not create “unlawful restraints on trade.” The Michigan Supreme Court recently addressed the scope and interpretation of non-compete agreements in the context of agreements between sophisticated business parties, rather than the more common employer - employee relationship. The Court ruled that the “rule of reason” applied to non-compete agreements between businesses. The Supreme court noted, “reasonableness of a non-compete agreement is inherently fact specific,” and cited prior decisions for the proposition that “the courts must scrutinize such agreements [non-compete agreements] and enforce them only to the extent they are reasonable.” The Court noted it was error for the court of appeals to apply the statutory standard articulated in MCL 445.774a, because that statute applies to evaluating the reasonableness of non-compete agreements entered into between employees and employers. Instead, in the context of commercial non-compete agreements between businesses, a lower court should apply the common law “rule of reason” to evaluate the parties’ non-compete agreements.
The Court noted that the Michigan Antitrust Reform Act (MARA) governs the contract at issue in this case. MCL 445.771 et seq. MARA provides that “a contract, a combination, or conspiracy between two or more person in restraint of, or to monopolize, trade or commerce in a relevant market is unlawful.” The Court makes clear that non-compete agreements between an employer and employee would be governed by MCL 445.774a, but the common law “rule of reason” would apply to cases involving commercial non-compete agreements. Federal courts have generally assessed non-compete agreements between two commercial entities under the rule of reason also. The Supreme Court’s unanimous decision on July 14, 2016, was in the case of Innovation Ventures LLC v Liquid Manufacturing LLC, case #150591 filed 7/14/16.
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