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Are Non-Compete Agreements Enforceable Against Independent Contractors in Michigan?

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This is one of those gray legal areas where the answer is “it depends on the facts of the situation.” Previously, I wrote about the basics of non-compete and non-solicitation agreements that are becoming increasingly common in all industries. At their core, non-compete agreements restrain the free labor market, and are therefore analyzed under the Michigan Anti-Trust Reform Act (“MARA”) (MCL 445.774a), which sets out a four-factor “reasonableness” test for the agreement. To be enforceable, the non-compete must: (1) Protect a reasonable competitive business interest; (2) Be reasonable in terms of duration; (3) Be reasonable in terms of geographical area; and (4) Be reasonable in terms of the the type of employment or business affected. Although the four-factor test in MARA expressly refers to “employer” and “employee,” lawyers and businesses frequently cited the same test when evaluating non-competes in other relationships, such as between two sophisticated business entities or an independent contractor.

In a 2017 opinion, Innovation Ventures v. Liquid Manufacturing, the Michigan Supreme Court clarified that the MARA test only applies to employment relationships. A different test applies to commercial agreements between sophisticated business entities. The case involved the manufacturer of 5-Hour Energy, and the Court looked at the plain language used by the Legislature to determine that the test does not apply to agreements between businesses. The Court further explained that MARA does not set forth a test for commercial agreements, but instead instructs courts to look to federal anti-trust law for similar legal analysis. The applicable test is the so-called “rule of reason,” which can be summarized as whether, under all relevant facts, the covenant unreasonably restrains competition. While the test may seem similar to the MARA four-factor analysis, it is different because it focuses on the reasonableness of the effect on the free market, rather than the impact on the restrained party.

What about independent contractors? Can a hiring party insist on a non-compete as part of the independent contractor agreement? And if so, what are the parameters for a valid non-compete for an independent contractor? First, parties are generally free to contract for anything, and so an independent contractor may certainly agree to a non-compete clause as part of their contract. Second, the non-compete will be evaluated under the same “rule of reason” as an agreement between two sophisticated commercial entities. This is because an independent contractor is not an employee – thus MARA’s four-factor test does not apply. Where MARA does not apply, the Legislature instructs courts to look at federal anti-trust law. Thus, the outcome is the same as with commercial contracts under Innovation Ventures. That means the rule of reason applies and the court will look at the effect of the restraint on the relevant market.

In applying federal anti-trust law, there is also a concept called a “per se” anti-trust violation. A “per se” violation is conduct that violates Section 1 of the Sherman Anti-Trust Act by its very nature and does not require proofs of the actual anti-competitive effect or the relevant market. Simply put, a “per se” anti-trust violation is one where there is no redeeming competition-facilitating effect. A classic example in the employment arena is the low-wage hourly worker non-compete. A restraint on an $11-per-hour janitor precluding him or her to work for a competitor serves no legitimate purpose whatsoever and is clearly abusive. A court will not enforce such a “per-se” violation. The independent contractor analysis would be similar – if there is no legitimate pro-competitive justification for the non-compete, it may not be enforceable.

One final word of warning. If you are a business considering or using non-compete clauses in your independent contractor agreements, some courts consider such clauses indicative of an employment relationship. If an individual or government agency (like the worker’s compensation agency) challenges your classification, a non-compete clause is evidence of control that weighs in favor of finding someone is an employee. And, if someone is misclassified as an independent contractor, there are a myriad of penalties, fines, and other problems that you may face.

Non-compete and non-solicitation clauses and contracts are becoming more and more standard. However, it is a mistake to blindly use them for all your employees or independent contractors. Each situation warrants its own analysis. Otherwise, your business risks not only losing non-compete litigation, but also risks other unintended adverse effects, such as a finding of an employment relationship where one was not intended.

More questions? Need a non-compete reviewed or drafted for your situation? Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.


© 2021 Artaev at Law PLLC. All rights reserved.

Employers: Know Your Obligations Under Michigan’s COVID-19 Employment Rights Act

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In late October 2020, Michigan enacted several important laws that affect employers’ rights and obligations in dealing with the COVID-19 pandemic in the workplace. I have updated my general COVID-19 guide for employers every month, and I have also written specifically about the COVID tort liability shield. Governor Whitmer also signed the COVID-19 Employment Rights Act (“COVID ERA”) – a significant set of Michigan-specific protections for workers that every employer should make sure they know and follow.

The Act itself is not lengthy or complicated. In general, it does two things: (1) imposes a mandatory quarantine for workers and sets forth specific criteria before they can come back to work; and (2) protects workers from retaliation for quarantining due to COVID. Employers must be familiar with and follow the Act for several reasons. The Act authorizes aggrieved employees to file suit in circuit court and collect a minimum of $5,000 in damages. Also, failure to enforce the quarantine mandate in the Act risks losing the tort liability protections of the COVID-19 Response and Reopening Liability Act. The tort liability shield is only available to those businesses that follow all applicable COVID laws and regulations – so a failure to follow the mandatory quarantine requirements in the COVID ERA may be used against employers in a subsequent lawsuit. For example, if the employer fails to enforce the 10-day quarantine, an employee comes back early and infects a customer, the customer may successfully pursue a negligence tort claim based on the fact that the business ignored the COVID ERA 10-day quarantine period.

Here is a more detailed summary of what the new Act requires:

First, the COVID ERA imposes a mandatory quarantine for workers and prohibits them coming to work if the worker:

  • Tests positive for COVID;
  • Is experiencing the principal symptoms of COVID; or
  • Has had close contact with another person who either tests positive for COVID or displays principal symptoms of COVID.

If the employee either tests positive or is experiencing principal symptoms (regardless of whether a subsequent test comes back negative) may not come back to work until:

  • It has been at least 24 hours since the employee’s fever has stopped without the use of fever-reducing medication and the other principal symptoms have improved; and
    • At least 10 days have passed since the onset of the COVID symptoms (even if testing yielded negative results); or
    • At least 10 days have passed since a positive test.

Employees who have had “close contact” with individuals who have tested positive for COVID or are experiencing principal symptoms must quarantine for at least 14 days or until the contact individual receives a medical determination that they did not have COVID at the time of the close contact.

Second, the COVID ERA prohibits employers from discharging, disciplining, or otherwise retaliating against employees who are observing the mandatory quarantine. Note that under the federal FFCRA that has been in effect since March, employees taking time off due to COVID are still entitled to 2 weeks of paid sick leave. This means that you will have to pay an employee observing the mandatory quarantine under the COVID ERA. Remember that a tax credit is available to offset the cost of this paid sick leave. Also, the FFCRA expires on December 31, 2020, and it is unclear if it will be extended or replaced at this time.

In addition, employers may not discharge, discipline, or otherwise retaliate against employees who “oppose a violation of this act [the COVID ERA]” or who report health violations related to COVID-19. In essence, employers may not retaliate against COVID whistleblowers.

To enforce the COVID ERA, the aggrieved employee may file a lawsuit in the circuit court, may seek an injunction and damages, and if the employee prevails, they are entitled to at least $5,000 in damages. This minimum damages provision is intended to encourage employees to enforce their rights under the COVID ERA and to allow them to secure representation, even where the actual damages may be difficult to prove or may be too small to justify legal action.

Finally, the COVID ERA applies retroactively to March 1, 2020, so an employer who illegally retaliated against an employee any time after March 1 can still be sued under this new Act. Note however that workers’ compensation applies to any employee injuries as a result of COVID. Thus, if an employee gets sick and blames their employer, their claim will likely fall under Michigan’s Worker’s Disability Compensation Act.

Questions about compliance with the COVID laws? Confused about the interplay between the various state and federal statutes? Contact attorney Dan Artaev by email or by call/text to set up a consultation.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is a summary of legislation for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

© 2020 Artaev at Law PLLC. All rights reserved.

COVID-related Employment Lawsuits Are on the Rise: What to Watch For and How to Avoid Them.

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Employment lawsuits and EEOC complaints are surging. All employers have had to adjust in response to federal, state, and local COVID orders. Small business not previously subject to FMLA have had to suddenly enact polices to comply with expanded regulations under the Families First Coronavirus Relief Act (“FFCRA”). Transitioning employees to remote work has not been easy either. However, businesses have to take extra care to make changes and transitions the right way, so that they are not subjected to employment discrimination or retaliation lawsuits. Litigation is not the only downside to employee strife – turnover is notoriously expensive and adding new team members during the pandemic brings its own set of challenges. Remember that communication, flexibility, and kindness goes a long way as we all continue to deal with a surging global pandemic.

An important note: Michigan recently enacted the COVID-19 Response and Reopening Liability Act that gives businesses immunity from COVID-related tort claims so long as they have been following all applicable laws and regulations. A tort claim is a claim that a customer or visitor can make against your business for an injury suffered on the premises. This new Act only applies to tort claims – it does not grant immunity from discrimination, contract, workers’ compensation, or any other type of claim or lawsuit.

What are some of the situations that may lead to an employment discrimination or retaliation claim against your business? There are many different situations, and each is fact-specific, but here are some common examples:

  • Discharging an employee because they or someone they have to care for contracted COVID.
  • Discharging an employee, reducing their hours, benefits, or otherwise treating them differently because they are taking leave under the FFCRA.
  • Denying an employee parental leave to care for a child whose school closed or when child care becomes unavailable.
  • Threatening to demote employees, reduce hours, or to reduce pay if they took leave under the FFCRA.
  • Denying reasonable accommodations for remote work or schedule adjustments.

Illegal retaliation is generally easier to prove than discrimination. Discrimination requires proof of an employer’s illegal motive. Retaliation simply requires proof that an employer treated an employee differently when they took leave or after they came back.

What can you do to protect your business from employment discrimination or retaliation claims? Again, each business and situation is fact-specific, so there is no one-size-fits-all approach. However, here are some general guidelines:

  • Be flexible and recognize that the pandemic has affected people with different family circumstances in different ways. People with children and single parents are more likely to need adjustments from their employers.
  • Make sure your workplace polices and employee handbook are up-to-date and consistent with the latest government guidance.
  • Educate managers and supervisors on the policies and applicable laws to ensure best practices.
  • Consult an attorney if you are not sure about how the new regulations apply to you or whether your organization is following federal and state employment laws.

Above all, be kind, flexible, and understanding. The pandemic is a world-wide crisis that has impacted everyone, and some more than others. From a business standpoint, a little flexibility can go a long way to reducing turnover cost, litigation costs, and boosting overall worker morale (which is invaluable).

Dan Artaev is a former Assistant Attorney General with the State of Michigan in the Labor Division, and in private practice has represented numerous employers with respect to employment law matters, including responding to EEOC and wage and hour complaints. Email Dan at dan@artaevatlaw.com or call or text (269) 930-0254 to set up your consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every business is different and faces its own unique set of challenges. Do not take any action with respect to your business until you have obtained specific guidance from a qualified professional.

© 2020 Artaev at Law PLLC. All rights reserved.

FAQ: Michigan’s COVID-19 Response and Reopening Liability Act

In 2020, employers have been struggling to navigate a maze of ever-changing COVID laws, regulations, and guidance from both the state and federal levels. It has not been easy. Besides trying to keep their business open, make ends meet, and generally stay safe, employers now have another thing to worry about: liability lawsuits for potential COVID-19 exposure, illness, or injury.

To protect businesses, the Legislature has passed new laws intended to create some certainty and protection against costly litigation. These are referred to as HB 6030 or the “COVID-19 Response and reopening Liability Assurance Act.” While the legislation is by no means a “get out of court free” card, it seeks to reduce lawyer costs and keep insurance premiums down across the board. Governor Whitmer signed the bills into law on October 28, 2020, which are effective immediately.

Q: Why do Michigan businesses need a “liability shield” against COVID-19 lawsuits?

A: The new law offers protections from tort liability related to COVID-19. The idea is to prevent negligence lawsuits against employers who were substantially following the law and public health guidance. As a policy matter, it is important to give employers and insurance companies some predictability – otherwise, insurance premiums will quickly become unaffordable and businesses may have to face litigation-related shutdowns, bankruptcies, etc., which would further disrupt the economy.

Q: What does the COVID-19 Response and reopening Liability Assurance Act do for businesses?

A: The new law grants businesses retroactive immunity (to March 1, 2020) from lawsuits alleging a COVID-19 claim, which is a tort claim based on or related to COVID-19 exposure (or potential exposure). COVID-19 claims also include allegations related to a business’s efforts to reduce COVID-19 transmission such as a “health screening, testing, contact tracing.” However, the immunity is only available if the business operated in compliance with all federal, state, and local laws and rules that were in effect and deemed legal at the time of the alleged incident.

An example of a potential tort claim is if a customer caught COVID-19 at your business and was injured. The customer will likely pursue a standard negligence claim, arguing that the business had a duty to keep the customer safe, breached that duty by allowing COVID-19 exposure, the exposure was the proximate cause of injury, and the customer suffered damages. Normally, the business would respond by disproving any of these elements – however, the new law creates an affirmative defense that allows the business to avoid liability by showing compliance with all applicable COVID-19 laws and regulations at the time of alleged exposure.

Q: What kinds of evidence would I need to show compliance and to claim immunity under the COVID-19 Response and reopening Liability Assurance Act?

A: The answer depends on your particular facts, location, and situation. However, in general a COVID preparedness and response plan, a designated COVID-19 coordinator, workplace policies directly addressing things like social distancing, mask-wearing, and disinfection protocols are all useful in showing compliance. For the latest guidance on compliance, check out my updated Guide for Michigan Employers Navigating COVID Regulations.

Q: Does this mean I don’t have to follow the COVID orders about masks and social distancing anymore at my business?

A: No. The orders enacted by the Michigan Department of Health and the Occupational Safety and Health Administration still apply and must be followed. Ignoring the government’s orders not only risks the health and safety of your employees and customers, but it also exposes you to government citations and fines for creating a dangerous work environment. The new law only gives immunity from a private lawsuit to a business that “acts in compliance with all federal, state, and local statutes, rules, regulations, executive orders, and agency orders related to COVID-19 that had not been denied legal effect at the conduct or risk.” In other words, a business that deliberately or recklessly violates safety orders receives no protection and will be fully liable for any injury or death related to COVID. Further, the law does not grant immunity from any administrative proceedings or civil actions brought by government entities to enforce COVID-19 safety orders.

Q: Are there minimum injuries that someone has to suffer due to COVID in order to bring a lawsuit?

A: No. Early drafts of the legislation included a “minimum medical condition” threshold that required a certain level of injury to bring a lawsuit – for example, hospitalization for at least 24 hours. Once the plaintiff met the minimum threshold, the employer could then introduce evidence of compliance with the law to create a “presumption” of non-liability. The final version of the law does not have this “burden-shifting” framework – instead, the requirement is that the employer show compliance with government directives in effect at the time of the alleged injury. Note that the law requires substantial compliance and expressly notes that a minimal inconsequential deviation is not enough to defeat immunity.

Q: Does this new law affect the existing workers’ compensation obligations or change potential exposure under workers’ compensation law?

A: No. The new law expressly states that it does not affect the rights, remedies, or protections under the Worker’s Disability Compensation Act. That means that if you have an employee who suffered a COVID-19 related injury in the scope of their employment, workers’ compensation insurance will likely apply and the COVID-19 injury will be treated the same as if the employee fell off a ladder, was hit by a forklift, or suffered some other more traditional work related injury. Note that workers’ compensation insurance is mandatory for businesses with at least one full time employee or at least three part-time employees at the same time.

Have more questions? Contact attorney Dan Artaev by email at dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is a summary of legislation for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

© 2020 Artaev at Law PLLC. All rights reserved.

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