Covenant Not to Compete Enforced by Preliminary Injunction

Plaintiff, a company in the business of selling computer bar code systems with accounts in 48 states, sued Defendant, a former employee, for breach of a covenant not to compete. Defendant had terminated her employment with Plaintiff, and accepted an offer from a direct competitor. Plaintiff sought a preliminary injunction enforcing the covenant not to compete, which was granted.

In opposing the preliminary injunction, Defendant first contended that, despite a contractual choice of Michigan law, California law governed the dispute, and precluded enforcement of the covenant not to compete. Under Michigan conflict of law rules, Plaintiff contended, California law should be applied because California, Defendant's state of residence, had a materially greater interest than Michigan in the dispute, and enforcement of the covenant would be contrary to the fundamental policy of California.

The court rejected this contention, holding first that the choice of law provision provided for Michigan substantive law, not Michigan's conflict of law rules. In any event, application of Michigan's conflict of law standards would result in applying Michigan law. Since Plaintiff is a Michigan corporation, with an interest in certainty and uniformity in the application of its employment contracts nationwide, Michigan has the materially greater interest in the case. Further, while California invalidates non-competition clauses unless they are necessary to protect trade secrets, there were issues of trade secrets in this case.

Applying Michigan law, the court found that the non-compete provision was enforceable under MCLA 445.774a, because it was reasonable with respect to duration, geographical area, and line of business. Since courts have upheld time periods of six months to three years, the one-year duration was reasonable. The provision's unlimited geographical scope was also reasonable, since Plaintiff services accounts in 48 states and various foreign countries. The line of business was likewise reasonable, since it was narrowly limited to bar code systems, a small part of the market for computer software and products.

Irreparable injury was established by the loss of consumer goodwill and weakened ability to fairly compete that would result from Defendant's disclosure of trade secrets and breach of the non-compete agreement.

Lowry Computer Products, Inc. v. Dadre L. Head, Civil Action No. 97-40356 (December 11, 1997)(Gadola, Paul V.)(Docket No. 15, 17 pp.).
This article was written by Ronald S. Longhofer, a partner in our Litigation Department, and previously appeared in the March 1998 edition of the Michigan Bar Journal.