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Noncompetition Agreement Enforced Against Former Employee, But Not His New Company

When going to work for a new employer, many new employees agree to a noncompetition contract. For many employers, such a contract is standard procedure for bringing on new talent, especially for workers with specialized and sought-after skills. Many workers sign noncompetition contracts without much thought on the matter. However, if the worker receives a better offer elsewhere or desires to start his own company, the noncompetition contract quickly becomes a major obstacle.

In a recent case, the Kent County Circuit Court was presented with a dispute over a noncompetition contract. In Terminix of West Michigan v. Arizola, a pest control company sought to enforce a noncompetition contract against a former employee. The employee and defendant in the case, Arizola, had signed a noncompetition contract with Terminix when he was first hired. The contract restricted his ability to compete with Terminix both during his employment and for a period of time following the end of his employment with Terminix.

Arizola worked for Terminix for approximately eight years before deciding to start his own pest-control company. After forming Bug Assassin, his new company, he began to contact existing Terminix clients while he was still working for Terminix. Arizola promptly resigned when Terminix discovered his behavior. Terminix then filed a lawsuit against Arizola and Bug Assassin, his new company, to enforce the terms of the noncompetition contract. The defendants argued that the noncompetion contract should be invalidated.

After analyzing the arguments, the court found that the contract should be enforced against Arizola. The court did not look kindly on Arizola’s actions of soliciting Terminix’s customers while still employed by Terminix, saying : “In doing so, Arizola committed flagrant violations of the noncompetition obligations imposed by his employment agreement.” Stating the rule for analyzing noncompetition contracts, the court said: “Michigan law empowers the Court to limit the scope of a noncompetition clause ‘[t]o the extent any such agreement or covenant is found to be unreasonable in any respect[.]’ …” Applying this rule, the court could find nothing unreasonable about the scope of the noncompetition contract between Terminix and Arizola. Thus, summary judgment against Arizola was proper.

However, not all of Terminix’s claims were successful. In assessing Terminix’s claims against Bug Assassin, the court noted that the claims in the suit were “(1) a claim for breach of contract; and (2) a request for injunctive relief predicated upon that alleged breach of contract.” The court then pointed out that Bug Assassin was not a party to any contract with Terminix. Thus, since there was no contract between Terminix and Bug Assassin, there could be no breach of contract by Bug Assassin. If Terminix wanted to take action against Bug Assassin, it needed to bring a different claim. The court then awarded summary judgment in favor of Bug Assassin on the claims brought against it.

This case shows an interesting scenario where a previous employer successfully enforced a noncompetition agreement with a former employee, but failed to achieve any sort of victory against the competing company that the former employee started. A more well-drafted noncompetition agreement or different claims brought against Bug Assassin may have been able to prevent this outcome and better protect Terminix’s business.

The attorneys at Dalton & Tomich, PLC have extensive experience in business law. If you or your business are thinking about creating or enforcing a noncompetition agreement, do not hesitate to contact us. We would be happy to speak with you about your matter.

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