When you bring in a new partner or hire a key employee, you are trusting them with your customers, your pricing and your methods. Non-compete and non-solicitation covenants protect that trust. Justin Esshaki, a Michigan Attorney and CPA, drafts and reviews these covenants for business owners, partners and employees.
A well-drafted covenant protects the relationships and information that make your business valuable, without overreaching so far that a court will narrow it. The right covenant depends on who is signing it and what they will have access to.
A non-compete limits someone from working for, owning or starting a competing business for a set period and within a defined area. In Michigan it must protect a reasonable competitive business interest and be reasonable in duration, geography and type of work.
A non-solicitation agreement prevents someone from pursuing your customers or recruiting your employees after they leave. It is narrower than a non-compete, often easier to enforce, and is frequently the better tool.
Confidentiality and trade secret provisions protect pricing, customer lists and processes regardless of where someone works next, and they belong in nearly every agreement.
A new owner learns your customers, pricing and strategy. Covenants in the operating agreement protect the remaining owners if that partner later leaves, takes clients or opens a competing business.
Shareholder and buy-sell agreements can include non-compete and non-solicitation terms that apply when an owner sells their shares, retires or is bought out.
Managers, engineers and other employees with access to sensitive information can be asked to sign covenants that fit their role, as part of a written employment agreement.
Customer non-solicitation terms protect the relationships your company paid to build, often with less risk than a full non-compete.
Employee non-solicitation terms limit a departing partner or employee from recruiting your staff to a competitor or a new venture.
A buyer pays for goodwill and expects the seller not to compete. These covenants are drafted into the purchase agreement, and the price allocated to them has its own tax treatment.
If you are the partner or employee being asked to sign, we review what the covenant would actually prevent you from doing and where there is room to negotiate.
Covenants written years ago may be broader or narrower than your business needs today. We review and update them as your business, roles and the law change.
Covenants for owners are coordinated with the operating agreement, buyout terms and valuation so they work together.
Duration, geography and scope are matched to your actual market and customers, which makes the covenant more defensible.
In a business sale, the amount allocated to a non-compete is taxed differently from goodwill, and the allocation is planned with that in mind.
We learn about your business, the person involved and what needs protecting.
We draft covenants scaled to the role or the deal, with confidentiality terms alongside them.
Owner covenants are tied to the operating or shareholder agreement and the buyout terms.
We revisit the agreements as roles, ownership and the law change.
Generally, yes. Michigan law allows an employer to enforce a non-compete that protects a reasonable competitive business interest and is reasonable in its duration, geographic area and type of work. Covenants between business owners, and those made when a business is sold, are reviewed under their own reasonableness standards.
A non-compete limits someone from working in or owning a competing business for a period of time. A non-solicitation agreement is narrower: it limits someone from pursuing your customers or recruiting your employees, while still allowing them to work in the industry.
In most cases it is worth considering. A new owner gains access to customers, pricing and strategy. Covenants in the operating agreement or shareholder agreement protect the other owners if that person later leaves, and they work best when tied to the buyout terms.
Michigan courts can limit an overly broad covenant to what is reasonable and enforce it as limited, rather than throwing it out entirely. Drafting it reasonably from the start makes it far more predictable and easier to enforce.
Amounts allocated to a covenant not to compete are generally ordinary income to the seller, and the buyer generally amortizes them over 15 years. Because that differs from how goodwill is treated, the allocation in the purchase agreement should be planned by both sides.
Bills have been introduced in the Michigan Legislature that would sharply limit non-competes for workers, and a federal rule that would have banned most of them was blocked in court and later abandoned. Existing agreements should be reviewed from time to time so they stay current.
Tell us briefly about the partner, employee or deal involved. We will follow up to schedule a consultation.