The provisions of Mich.Comp. Law § 445.761 prohibiting covenants not to compete has been in effect, unchanged since 1905. It has been rigorously enforced by the courts. In E.W. Smith Agency, Inc. v. Sanger, 350 Mich. 75, 79, 85 N.W.2d 84 (1957), the court considered whether a contractual provision "precluding defendant from engaging in soliciting insurance, in certain territory, for a period of 3 years in competition with plaintiff following the termination of his employment, contravened" § 445.761. The Sanger contract was geographically limited to Wayne County while Muma's has no geographical restriction.
Ran, on the other hand, contends that the clause he agreed to amounts to an unenforceable non-compete provision. Ran relies primarily on E.W. Smith Agency, Inc. v. Sanger, 350 Mich. 75, 85 N.W.2d 84 (1957). Sanger involved a non-compete agreement whereby an insurance underwriter agreed not to engage in the same or similar line of business in Wayne County for a period of three years after leaving the employ of the plaintiff, which the Michigan Supreme Court ruled was an unenforceable promise under Michigan law pursuant to § 445.761.
Therefore, the transfer would not be for a valuable consideration as required by M.S.A. 28.66. In E.W. Smith Agency, Inc. v. Sanger, 350 Mich. 75, 85 N.W.2d 84 (1957), the Michigan Supreme Court unanimously refused to enforce a restrictive covenant which would have prohibited the defendant, an insurance salesman, from competing with plaintiff insurance agency, his former employer. To avoid the effect of M.S.A. 28.61, plaintiff argued that M.S.A. 28.66 was controlling because of a provision in the employment contract which gave plaintiff the right to purchase the defendant's rights in expiration, renewal and prospect records arising from insurance sold by him during his employment.
The Court concluded that the statutory exception did not apply, because no sale or transfer of a business, profession or good will occurred where the defendant had no singular or separate business, profession or good will to sell to the partnership. In another line of cases, Michigan courts have refused to enforce a covenant not to compete contained in an employment contract. E W Smith Agency, Inc v Sanger, 350 Mich. 75, 81; 85 N.W.2d 84 (1957); Wedin v Atherholt, 298 Mich. 142, 145; 298 N.W. 483 (1941); Mackie v State Farm Mutual Automobile Ins Co, 13 Mich. App. 556; 164 N.W.2d 777 (1968). Our resolution of this case requires us to determine the nature of the parties' agreement.
The statute expressly declares that even reasonable, partial or limited restraints on the ability to do so are against public policy. Thus, agreements are void which preclude one from engaging in a particular calling for a limited period of time, Wedin v Atherholt, 298 Mich. 142; 298 N.W. 483 (1941), or which preclude one from engaging in a particular calling within a specified geographical area, E W Smith Agency, Inc v Sanger, 350 Mich. 75; 85 N.W.2d 84 (1957). MCL 445.766; MSA 28.66 provides exceptions where a sale of a business is involved, or the goodwill thereof, or where an employer furnished an employee with a route list.
However, when the contract uses language such as "not to engage in", "shall not", "will not", "no partner shall engage", or "agrees not to compete", the courts have found the statute to have been violated and the provisions unenforceable. See E W Smith Agency, Inc v Sanger, 350 Mich. 75; 85 N.W.2d 84 (1957), Lyzen v Lyzen, 221 Mich. 302; 191 N.W. 6 (1922), Grand Union Tea Co v Lewitsky, 153 Mich. 244; 116 N.W. 1090 (1908), Bernstein, Bernstein, Wile Gordon v Ross, 22 Mich. App. 117; 177 N.W.2d 193 (1970), and Mackie v State Farm Mutual Automobile Ins Co, 13 Mich. App. 556; 164 N.W.2d 777 (1968), lv den 381 Mich. 806 (1969). The language in the lease which states that defendant will not construct a restaurant within three miles of the mall is in violation of the statute and, therefore, improper.
The Michigan cases cited by Federal which have held agreements invalid under the statute concern agreements which directly prohibit an employee from engaging in a certain business. E.W. Smith Agency, Inc. v. Sanger, 350 Mich. 75, 85 N.W.2d 84 (1957); Wedin v. Atherholt, 298 Mich. 142, 298 N.W. 483 (1941); Lyzen v. Lyzen, 221 Mich. 302, 191 N.W. 6 (1922); Grand Union Tea Co. v. Lewitsky, 153 Mich. 244, 116 N.W. 1090 (1908). The present case involves an agreement which is much more indirect.
Michigan case law also evidences public policy against covenants not to compete. See Muma v. Financial Guardian, Inc., 551 F. Supp. 119, 122 (E.D.Mich. 1982); E.W. Smith Agency, Inc. v. Sanger, 350 Mich. 75, 85 N.W.2d 84, 86 (1957). Michigan law, however, makes a distinction between contracts which impose restrictions during performance of the contract and restrictions which extend beyond the expiration of the contract term.
The penalty imposed on Couch has no such immediate and overwhelming impact. See E W Smith Agency Inc v. Sanger, 350 Mich. 75 (1957). The Legislature has chosen to bar only agreements which prevent an employee from engaging in other employment.