The Michigan Court of Appeals in Total Quality, Inc v Fewless, ____ Mich App ____ (July 9, 2020) ruled that a non-solicitation restriction extended to business obtained by defendants without active “solicitation.”[1]
On first blush, Total Quality seems to conflate non-solicitation restrictions with non-competition restrictions. But is this really what the Total Quality decision represents? Several factors potentially limit the effect of the Total Quality holding:
First, the restrictive covenant involved in Total Quality arose out of the sale of a business. Courts always are more agreeable to enforce restrictive covenants in the context of a business sale. Defendants sold their company to plaintiff’s predecessor, and were hired as employees of the buying entity. Although the non-solicitation restriction was part of defendants’ employment agreements with buyer, such employment was really a part of the business sale.
Second, the non-solicitation agreement involved in Total Quality included the phrase, “otherwise interfering with the business relationships” of plaintiff. Such broad language, even under the heading of “non-solicitation,” really is more in the nature of a proscription against competition.
Third, the axiom “bad facts make bad law” applies to Total Quality. Defendants acted badly; the court’s ruling seems to reflect their misconduct.
The entity formed by defendants when they left plaintiff’s employment contains the word “Quality,” apparently to confuse itself with plaintiff.
Defendants did in fact hire several former employees of plaintiff – in direct violation of the traditional application of a non-solicitation restriction.
Defendants (and plaintiff’s former employees) did in fact solicit business directly from plaintiff’s customers – again, in direct violation of even a conservative enforcement of non-solicitation.
It is not clear how courts will apply the Total Quality ruling to future disputes between employers and their former employees.
If you are an employer or employee with questions about the consequences of the Total Quality decision on you, please do not hesitate to contact Bob Sosin at 248-642-3200 or robert@asnlaw.com.
[1]The Total Quality court also held that Section 4a of the Michigan Antitrust Reform Act, MCL 445.774a, does not apply to non-solicitation agreements, but even if it did, a former employer has a “legitimate business interest” in restricting former employees from soliciting its customers, and a 2-year duration was reasonable.