Non-Compete Agreement Interpreted in Favor of Employee

In a recent Michigan Court of Appeals case, Huron Technology v. Sparling, Mich. Ct. App., Sept. 11, 2014, Unpublished, the Court found that an Employee did not violate his Non-Compete Agreement because he was not working for a “competitor” as defined under his Agreement.

The Defendant/Employee executed an employment contract when he was first hired by Plaintiff, a company in the material handling industry. In the Agreement, he agreed he would not for a period of two years after his employment ends, perform any services . . . for a company which makes or sells . . . any products or service competitive with a product or service offered by his employer. Defendant’s job involved soliciting customers and developing specialized equipment for each customer’s unique needs.

When Defendant resigned from his Employer, he became employed with LEWCO, Inc., a Corporation in the same material handling industry. Employer sought to enjoin the Defendant from working for LEWCO, while Defendant argued that LEWCO was not a competitor of plaintiff because LEWCO did not accept elevated-risk projects, whereas his former employer almost exclusively accepted elevated-risk projects. The trial court concluded that the non-compete agreement, though reasonable in duration and geographic scope, was unenforceable because it did not protect the employer’s reasonable competitive business interests and was an unreasonably broad prohibition on field of employment. The trial court alternatively found the defendant did not breach the non-compete agreement because there was little competition between LEWCO and plaintiff. The trial court granted the Defendant’s Motion to Dismiss, and the Plaintiff/Employer appealed.

The Court of Appeals stated that “[a]t first glance, it appears to be a close question whether the trial court erred in concluding that the language referencing ‘any products or service competitive with a product or service offered by the Company’ was an unreasonably overbroad prohibition on line of business.”

The Court noted that a careful reading of the plaintiff’s noncompete showed that it encompassed “a significantly broader” range of businesses than noncompete language in prior case law.

“But in this case, the non-compete agreement [prohibited] defendant from working for a business that offers a single product or service that is “competitive” with any product or service offered by the plaintiff, regardless of whether the business is in actual competition with the plaintiff,” the Court stated. “The non-compete agreement [prohibited] the defendant from working for any business that is in remote competition with the plaintiff, which is unreasonably restrictive,” the Court of Appeals said.

Because the provision in the noncompete was unreasonable, the trial court erred by not imposing a reasonable prohibition instead of completely voiding the agreement. However, any error was harmless because the reasonable prohibition would have limited the defendant from working with a competitor in the plaintiff’s field of business.

The trial court ruled the plaintiff and LEWCO are not competitors. The [trial] court noted that plaintiff ‘is involved in highly modified conveyors that create dangerous conditions for operators,’ while LEWCO ‘manufactures more standardized conveyors and refuses to get involved in high risk projects.’” Therefore, even if a reasonable prohibition was inserted into the contract, the plaintiff still could not succeed on its claim.

This case illustrates the intricacies involved in interpretation of a non-compete agreement and stresses the importance of a properly drafted agreement. If your Company requires drafting or review of non-compete agreements, please contact the attorneys at Dalton & Tomich, PLC for further assistance.