cases, commentary and news related to restrictive covenants
Tuesday, March 24, 2009
Michigan Courts Continue Favorable Policy Towards Enforcement of Non-Compete Agreements (Kelly Services v. Marzullo)
Prior to 1985, Michigan was one of the most employee-friendly states when it came to non-compete agreements. With one very narrow exception, such covenants were void under state statute. Since then, however, the repeal of Michigan's old law and the enactment of a new statutory scheme has made Michigan one of the most-employer friendly venues with respect to non-competes.
Michigan's broad policy favoring non-compete agreements was on display in Kelly Services v. Marzullo, a case in the ever-litigious employment staffing services industry. Marzullo was a high-level executive for Kelly Services, working in its Dallas, Texas office as Regional Manager/Vice-President. In June of 2007, Marzullo signed a new restrictive covenant agreement, which was governed by Michigan law. In addition to a non-solicitation and non-disclosure clause, the contract contained a one-year industry non-compete covenant which barred Marzullo from working in the employee staffing business in any state in which he had responsibility during the three years prior to his termination. From the facts, it appears Texas would be the only state included within the industry non-compete.
After his resignation, Marzullo went to work for Roth Staffing Companies, and he stated that he would be responsible for West Coast operations. At the time he left, Marzullo indicated he would not have responsibility for clients in Dallas and mentioned he would have to relocate. Aided by a LinkedIn profile indicating otherwise, Kelly Services determined Marzullo was not only still living in Dallas after his resignation but was responsible for Roth's Dallas territory.
At the preliminary injunction hearing, Kelly Services conceded Marzullo had not yet solicited any of his old accounts in violation of the contract, nor had it discovered misappropriation of confidential information. Marzullo, however much he tried to downplay the extent of his work in Texas, was in violation of the industry non-compete.
Under Michigan's pro-employer law, this was enough to warrant an injunction in Kelly Services' favor. Marzullo's defense was based mainly on the choice-of-law clause; had he been able to apply Texas law (which he wasn't), Marzullo stood a chance of prevailing on a technical consideration argument, but the court even seemed dubious that contention would enable Marzullo to escape the one-year covenant.
Employers in Michigan have a significant upper hand when litigating non-compete agreements, and they are able to prevail even if less-restrictive activity covenants would otherwise protect an employer.
Court: United States District Court for the Eastern District of Michigan
Opinion Date: 11/20/08
Cite: Kelly Services, Inc. v. Marzullo, 2008 U.S. Dist. LEXIS 107793 (E.D. Mich. Nov. 20, 2008)
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