A common mistake employers make in protecting their business interests is poorly drafted non-compete agreements. And frequently that mistake involves drafting inconsistencies. As explained below, inconsistencies provide a foundation for challenging the scope or outright enforceability of a company’s non-compete restriction.
In this regard, we recently defended against Christian Financial Insurance/Christian Insurance Group, Inc.’s motion for injunctive relief. The motion was filed against its former sales agents. After raising concerns about Christian Insurance Group’s business practices and sales tactics (let’s just say the agents did not believe customers were treated very Christian-like), these agents began competing against it. The suit was filed in Grand Rapids, Michigan and sought to enforce the agency’s non-compete restriction.
Differing geographic restrictions.
Enforcement problems quickly arose; One agreement called for a state-wide band on selling insurance. The other agreement called for a 65-mile restriction from the agency’s Grand Rapids office. There was no dispute the agents signed their respective non-compete restrictions and continued to sell insurance after leaving the Christian Insurance.
The non-compete restrictions (we later learned) had not been drafted by legal counsel. They were either found or recycled by Christian Insurance’s principal. And this was evident in the language and lack of consistency.
Two main arguments were made attacking the motion for injunctive relief:
- First, Christian Insurance’s claim a state-wide band was reasonable and necessary to protect its business interests was easily undermined by the other restriction calling only for a more limited 65-mile restriction. The Court agreed and refused to enforce the state-wide band.
- Second, the broad language of the non-compete restriction also doomed its enforcement. The prohibition on the agents selling any insurance – in or out of the restrictive area – was rejected. Instead, the Court, after some very good lawyering by Christian Insurance’s counsel, was persuaded to grant a limited injunction. That limited injunction prohibited the defendant agents from soliciting former customers and employees/independent contractors of the Plaintiff agency. It also restricted them from selling a specific insurance product Plaintiff claimed to have niche expertise in selling called “final expense insurance. But this restriction was limited to the narrow 65-mile restriction – not the state-wide band Plaintiff had sought.
Not a good return on investment when it comes to non-compete enforcement.
Whether this injunction will remain in place after the litigation dust settles remains to be seen. But Christian Insurance spent a lot of time and resources (e.g., money) in seeking to restrict its former sales agents from competing against it. It came upon short in stopping that competition. And the value of the limited injunction was later eliminated. This happened when Christian Insurance moved its office from Grand Rapids to Lansing, but Grand Rapids remained the epicenter for the 65-mile injunction.
So, what’s the takeaway for employers? If you are going to spend time, money, and other resources in having your work-force sign a non-compete agreement, spend the time, money and other resources in getting the agreement properly drafted.
Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.