Non-Compete Agreements in Michigan: What Still Holds Up

The Short Answer: State Law Controls in 2026

Michigan's non-compete statute, MCL 445.774a, governs every non-compete agreement your company uses with Michigan employees in 2026. The FTC's sweeping rule that would have banned most non-competes nationally was vacated in August 2024, and subsequent federal proceedings have shelved any federal successor rule. State law, specifically Michigan's reasonableness framework, is the only game in town.

For Michigan employers, that means the Ryan LLC v. FTC decision issued by the Northern District of Texas on August 20, 2024, is settled background: federal rulemaking is off the table, at least for now. What governs your agreements is MCL 445.774a and the three-part test Michigan courts apply to every non-compete covenant: Is the restriction reasonable in duration? Is it reasonable in geographic scope? Is it reasonable in the type of employment or line of business it covers? Those three questions organize everything that follows.

If you are designing or auditing restrictive covenant programs for Michigan employees, our Michigan employment law practice covers the full range of employer-side considerations.

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What MCL 445.774a Actually Requires

Understanding what makes a non-compete enforceable in Michigan starts with reading the statute carefully. MCL 445.774a permits non-compete covenants only when they are reasonable as to duration, geographic area, and type of employment or line of business. Courts treat all three prongs as interrelated, not independent checkboxes.

Duration

One-year restrictions are generally upheld by Michigan courts without significant scrutiny. Two-year restrictions are enforced when the employee had genuine client relationships, access to proprietary pricing models, or other business-sensitive information that has a meaningful shelf life. Anything beyond two years faces serious reformation risk, particularly for non-managerial employees such as loan originators or processors who did not hold strategic roles. Longer duration is not automatically fatal, but the employer bears the burden of explaining why the business interest requires it.

Geographic Scope

Geography must be tied to where the employee actually worked, not where the employer holds licenses or operates branches. A restriction covering the entire state of Michigan for a loan originator who worked exclusively in the Grand Rapids metro market is a common and costly drafting error. Michigan courts look at the employee's actual territory and ask whether the geographic restriction matches the competitive threat. Statewide restrictions for single-market employees invite reformation or outright invalidation.

Scope of Employment

The activity restriction must match the employee's actual role and the employer's legitimate business interest in that role. A legitimate business interest under Michigan law typically covers client relationships the employee developed or maintained, proprietary pricing models or rate sheets, referral partner lists with established relationships, and lead generation systems the employer built and owns. The scope of the covenant must be traceable to one of those interests. A restriction that bars a former loan processor from working anywhere in the financial services industry for two years fails this test; it protects no identifiable interest and covers far more than the employee's actual competitive footprint.

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Blue-Penciling: What It Means When Your Agreement Is Too Broad

Michigan courts have explicit authority under MCL 445.774a(1) to modify an overbroad covenant rather than void it entirely. This is called blue-penciling, and it is frequently misunderstood as a safety net for aggressive drafting. It is not.

Here is the practical reality: if a Michigan court blue-pencils your non-compete, the court draws the new boundary, not you. The court may narrow the geographic scope from statewide to a single county, shorten a two-year restriction to one year, or limit a broad industry exclusion to the specific product lines the employee actually worked on. The surviving agreement reflects the court's judgment about what is reasonable, which may be narrower than what you needed to protect your actual business interest.

Consider a worked example. A Michigan lender includes a two-year, statewide non-compete for a Grand Rapids loan originator with access to a proprietary lead management system. A court finds the geography overbroad and the duration excessive for a non-managerial employee. After reformation, the originator is restricted from competing in Kent County for one year. The lender wanted statewide protection for two years and received a single-county restriction for one year. That is not a win; it is a court-managed loss of scope.

Reformation is not guaranteed, either. Courts retain discretion to void an agreement entirely when the overbreadth is so extreme that it suggests bad faith on the employer's part. Drafting aggressively is not a free option. The cost of overreach is either a court-drawn boundary or no boundary at all.

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Consideration: The Flashpoint Most Employers Miss

The most common reason post-hire non-competes fail in Michigan is not overbreadth; it is inadequate consideration. Continued employment alone is generally not sufficient consideration for a non-compete signed after the employee's start date. If you present an existing employee with a non-compete and offer nothing beyond keeping their current job, a Michigan court is unlikely to enforce it.

What courts do treat as adequate consideration includes a promotion with new title and compensation, a signing bonus paid specifically in connection with the agreement, access to a proprietary leads system or pricing tool not previously available to the employee, an expanded territory, or a new benefit with identifiable economic value. Platform access events are common in the mortgage industry: when a lender rolls out a new lead management system or proprietary rate sheet, tying a non-compete to that access is a defensible and commercially logical triggering event.

The critical practice point is documentation. The specific benefit exchanged at signing should be recited in the agreement itself, not assumed. An agreement that says only "in consideration of continued employment" is inadequate on its face. An agreement that says "in consideration of access to the Company's proprietary leads management platform, effective [date]" gives the court something to evaluate.

Onboarding non-competes presented as take-it-or-leave-it conditions with no separate consideration identified are a distinct category of risk. When no identifiable benefit beyond the job offer itself is tied to the covenant, courts may find the consideration inadequate even for agreements signed before the first day of work. Proper structuring matters from the beginning. If you are also managing the risk of a departing employee, review our guidance on separating an employee without triggering litigation before you act.

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Non-Compete vs. Non-Solicitation: Why the Label Matters

Non-compete covenants, non-solicitation of customers, and non-solicitation of employees are analytically distinct under Michigan law. Each serves a different protective purpose, and each carries different enforceability risk. Treating them as interchangeable, or bundling all three into a single omnibus clause, is a drafting error with real consequences.

When all three restrictions appear in a single clause without clear separation, Michigan courts may treat the entire agreement as a non-compete and subject all of it to the MCL 445.774a reasonableness test. A customer non-solicitation clause that might have survived as a standalone restriction can be dragged down by an overbroad geographic or duration term in the adjacent non-compete language.

What each restriction actually protects is distinct. A non-compete protects against direct competitive employment. A customer non-solicitation protects referral partner relationships and client lists that the employer built and the employee accessed. An employee non-solicitation protects internal team stability and the employer's investment in training and retention. Each of those interests is real, but each requires its own covenant with its own scope, its own consideration recital, and its own durational logic.

For detailed guidance on structuring these agreements correctly, see our briefing on non-solicitation agreements in Michigan. A properly drafted non-solicitation clause protecting referral partner relationships is often easier to enforce and harder to challenge than a broad non-compete because the protected interest is narrower and more clearly defined.

For Michigan mortgage lenders in particular, the non-solicitation protecting referral partner lists and established customer relationships may do more practical work than a non-compete that invites litigation over its scope. Structure accordingly.

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Where Companies Go Wrong: Common Drafting Errors

The following errors appear repeatedly in Michigan non-compete disputes. Each one is avoidable with proper drafting and review.

Statewide geography for a single-market employee. A loan originator who worked the Grand Rapids metro cannot be restricted from competing across Michigan. Courts will reform or void a geographic scope that exceeds the employee's actual territory.

Duration exceeding two years for non-managerial employees. Two years is the practical ceiling for most non-managerial mortgage professionals in Michigan. Pushing beyond it without a documented justification tied to a specific business interest invites reformation.

Continued employment as the sole stated consideration for a post-hire signing. This is the most common and most easily avoided error. Name the specific benefit. Put it in the agreement.

Bundling non-compete, non-solicitation, and non-recruitment into a single clause. Separate covenants with separate consideration survive independently. Bundled covenants rise and fall together.

Failing to recite the specific legitimate business interest being protected. A court cannot evaluate whether a restriction is proportionate to the interest unless the interest is identified. State it explicitly: proprietary pricing model, referral partner list, customer database, lead generation system.

Using a template designed for a ban-state. California and Minnesota templates import language and assumptions incompatible with Michigan's reasonableness framework. A California-style carve-out clause can undermine an otherwise valid Michigan agreement by importing concepts that do not translate. For employees who work across state lines, identifying the correct choice-of-law provision is a separate and critical step.

Failing to monitor Michigan legislative activity. The Legislature considered bills restricting non-competes in the 2023-2024 session. None were enacted as of mid-2026, but the risk of a statutory change without a grandfather clause is real. Agreements that are compliant today may not survive a legislative shift without revision. This concern connects directly to protecting trade secrets in Michigan, because trade secret protections may need to carry more weight if non-compete restrictions are narrowed by statute.

For employers who want a full review of their current agreements against these benchmarks, our Michigan employment law practice can assess what holds up and what needs to be rebuilt.

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What to Do Before the Next Signing or the Next Departure

The time to assess your non-compete program is before a dispute, not after a valued employee walks out the door with a client list and joins a competitor down the street.

Start with an audit. Pull your current form agreements and evaluate each one against the three-part reasonableness test: Is the duration defensible for this employee's role? Is the geography tied to their actual territory? Is the activity restriction proportionate to the business interest you are protecting?

Next, separate your covenants. Non-compete, non-solicitation, and non-recruitment provisions should each stand alone, with their own consideration recital and their own scope. This is not drafting complexity for its own sake; it is the structural choice that allows each restriction to survive independently if the others are challenged.

For multi-state lenders, identify which state law governs each employee's agreement and whether a choice-of-law clause is defensible in each jurisdiction. Michigan's reasonableness framework is the baseline for Michigan employees, but employees who work remotely or split time across state lines may be subject to different rules depending on how a court analyzes the governing law question.

When a competitor hires a departing employee mid-covenant, assess the specific restrictions before pursuing injunctive relief. A court that blue-pencils a weak covenant may produce a narrower result than a negotiated release. Knowing the realistic judicial outcome before you file for a TRO is not pessimism; it is leverage management. Understand, too, that a non-compete dispute frequently triggers related claims: a breach of contract claim in Michigan against the departing employee and tortious interference claims that often accompany non-compete disputes against the hiring competitor. Build your litigation strategy around all three before you move.

If your agreements have not been reviewed against current Michigan law and drafting standards, schedule a covenant audit before the next onboarding cycle or the next departure creates urgency. Beckett and Moss reviews and rebuilds restrictive covenant programs for Michigan employers. Contact us to schedule an agreement review.