When does a “Non-Solicitation” Restriction Extend to “Non-Competition”?

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.

Are Non-Solicitation Agreements Illegal in Michigan?

The Michigan Antitrust Reform Act, MCL 445.771, et seq. (the “Act”) makes it unlawful for persons to contract in restraint of trade or commerce:

“A contract, combination, or conspiracy between 2 or more persons in restraint of, or to monopolize, trade or commerce in a relevant market is unlawful.”

MCL 445.772.  Such legal restriction would seem on its face to make “unlawful” an agreement between an employer and employee preventing the employee, post-employment, from soliciting business from the employer’s customers – i.e., the traditional “non-solicitation” restriction found in employment relationships.

 Until recently, such “non-solicitation” restrictions were given enforceability under Section 774a of the Act [MCL 445.774a] which exempts from the Act’s proscription “an agreement or covenant which protects an employer’s reasonable competitive business interests”:

“An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.”  

[Emphasis added].  State another way, even though a traditional “non-solicitation” restriction would otherwise be “unlawful” under Section 772 of the Act, Section 774a carves out an exception to unlawfulness if such restriction (1) “protects an employer’s reasonable competitive business interests” and (2) is reasonable in duration, geographical area and scope of restriction. 

However, the Michigan Court of Appeals, in the published case of Total Quality v Fewless, ____ Mich App _____ (July 9, 2020), held:

“The provision at issue in this case is a nonsolicitation agreement, and defendants have not cited authority in support of the contention that nonsolicitation agreements are subject to MCL 445.774a(1).”

Kent County Business Court Judge Yates relied on this holding to rule a non-solicitation restriction could not take advantage of the last sentence of Section 774a – i.e., be “rewritten by the court” to be made reasonable [Symonds v Lighthouse Insurance Group, 10/21/20 Opinion]. 

 If the Total Quality court and Judge Yates are correct, and Section 774a of the Act does not apply to non-solicitation restrictions, then non-solicitation restrictions are not protected from being rendered unlawful by Section 772 of the Act.  In other words, non-solicitation restrictions could be attacked under Section 772 as an unlawful restraint of trade or commerce.

If you are an employer or employee with questions about this analysis, please do not hesitate to contact Bob Sosin at 248-642-3200 or robert@asnlaw.com.

Governor Whitmer’s “Stay at Home” Executive Order

Michigan employers – have you formally designated your employee(s) that are allowed to leave home to work?

Governor Whitmer’s “Stay at Home” Executive Order [No. 2020-21] requires businesses and operations to designate in writing on or before March 31, 2020 those workers “necessary to conduct minimum basic operations” and “inform such workers of that designation.”

“For purposes of this order, workers who are necessary to conduct minimum basic operations are those whose in-person presence is strictly necessary to allow the business or operation to maintain the value of inventory and equipment, care for animals, ensure security, process transactions (including payroll and employee benefits), or facilitate the ability of other workers to work remotely.”

Please do not hesitate to contact Mort Noveck or Bob Sosin at 248-642-3200 if you have any questions about compliance with the Governor’s Order, or if you have any other questions regarding the effects of the COVID-19 pandemic on your business.

Sixth Circuit Sanctions Attorney for late Age Discrimination filing

Attorneys beware!  The Sixth Circuit Court of Appeals, in the case of Carter v Hickory Healthcare Inc, ___ F3d ___ (6^th Cir Sept. 2018), affirmed a trial court’s imposition of almost $26,000 in sanctions against plaintiff’s attorney “because he had advanced a claim that was clearly time barred.”  The Carter court rejected the attorney’s long list of arguments on appeal, including that his client’s claims were equitably tolled.

In 2007, Ms. Carter had filed charges of disability discrimination with the Ohio Civil Rights Commission [OCRC].  The OCRC informed her it filed a “parallel charge” with the EEOC.  In November 2013, after six years, the OCRC ruled for Carter and ordered defendant to reinstate her and pay her lost wages.

Carter then asked the EEOC for a right-to-sue letter.  The EEOC sent her such right-to-sue notice dated February 20, 2014, but sent it to an old address from which she had moved.  Carter did not receive the right-to-sue notice before the 90-day deadline for filing a federal court lawsuit.

Carter’s attorney, Gilbert, filed suit on December 9, 2014 – almost 200 days after the 90-day deadline.  Before filing suit, Gilbert had obtained from the EEOC a copy of its February 20, 2014 right-to-sue letter.

The trial court granted defendants’ motion for summary judgment and sanctions.  On appeal, the Sixth Circuit affirmed over Gilbert’s objections.  Highlights from the Carter court’s ruling include:

• “A claimant must inform the Commission of any change in her address” [29 CFR § 1601.7(b)].
• The regulation requiring sending a right-to-sue letter to attorneys “applies only to public sector claims, not private ones like Carter’s.”
• “It thus is not true that ‘a failure by the EEOC to copy counsel on a right-to-sue letter prevents the ninety-day period from running.’”
• Carter and her attorney could not rely on “the assumption that the Ohio Agency (which she told about her new address) would inform its federal counterpart about her move.”
• Even if Carter made an “honest mistake” about the two agencies’ cooperation, such mistake “doesn’t qualify as misleading.”
• “Maintaining a clearly time-barred lawsuit constitutes a classic example of conduct that warrants a sanction.”

If any employee or employer is faced with a similar issue, attorney Robert M. Sosin [248-642-3200 / robert@asnlaw.com] would be pleased to discuss the matter in more detail.

Michigan Medical Marihuana Act – Potential Employer Pitfalls

An employee’s urine test discloses the presence of the marihuana metabolite, THC-COOH. The employee produces a valid “Registry Identification Card” issued pursuant to the Michigan Medical Marihuana Act [MCL 333.26421, et seq. – MMMA].  He explains he last smoked medical marihuana over the weekend.

What can the employer do?  What should the employer do (or not do) under current Michigan law?

The MMMA grants “immunity” to authorized medical marihuana patients in Section 4(a) of the Act [MCL 333.26424]:

“A qualifying patient who has been issued and possesses a registry identification card shall not be subject to arrest, prosecution, or penalty in any manner, or denied any right or privilege, including but not limited to civil penalty or disciplinary action by a business or occupational or professional licensing board or bureau, for the medical use of marihuana in accordance with this act * * *.”

[Emphasis added].  Does this protect the employee from discipline or discharge?

The case of Casias v Wal-Mart Stores, Inc, 695 F3d 428 (6^th Cir 2012) says “no.”  Casias ruled that the MMMA does not apply to private employers, only state actors.  This ruling offers a strained reading of the above statutory section, and ignores other pertinent sections of the MMMA.  Recent court decisions have impliedly criticized Casias and refused to follow it in related factual situations.  In Braska v Challenge Manufacturing, 307 Mich App 340 (2014), the court stated “the Casias decision is not binding precedent on this Court,” and found that persons lawfully using medical marihuana are not disqualified from receiving unemployment benefits following a positive drug test.

It is unclear what a Michigan appellate court would decide if faced with facts similar to Casias. As a result, employers are wise to think twice before firing a medical marihuana user for testing positive on a drug test.

Employers also should exercise great restraint when discovering that an employee possesses a valid Registry Identification Card.  Why?  Because any conversation or discussion about the underlying reason for the employee’s use of medical marihuana is fraught with danger.  If an employer learns its employee is using medical marihuana to control her epilepsy, and the employer did not know about the employee’s condition before, any employment action the employer thereafter considers might appear to be motivated by the employee’s disability and not her positive drug test.  In fact, a very recent decision by U.S. District Judge Steeh in Detroit involved precisely this claim.

If any employer or employee is faced with a medical marihuana issue, attorney Robert M. Sosin [248-642-3200 / robert@asnlaw.com] would be pleased to discuss the matter in more detail.

How Long Must Employer Allow Employee to “Heal”?

An employee is injured in an accident outside of work.  She requests and is granted an unpaid leave of absence under the Family and Medical Leave Act [FMLA].  However, after her twelve (12) weeks of FMLA leave are exhausted, her doctor still has not released her to return to work.  The doctor’s note to the employer indicates the employee needs another month to heal from her injuries sufficiently to be able to perform the essential functions of her job.

What are the employer’s options?  Does the employer have to allow the employee additional time off even though she has used up her FMLA leave?  Does the Americans with Disabilities Act [ADA] afford the employee more time to “heal” from her injuries as a “reasonable accommodation” under the Act?  And, if so, is there a clearly defined limit of time under the ADA after which the employer no longer has to wait for the employee to heal?

Unfortunately for employers and employees alike, there are no bright line “healing” parameters.  However, some reasonable guidelines have emerged from the Equal Employment Opportunity Commission [EEOC] and court decisions.  For example:

• One (1) additional week of leave after expiration of FMLA leave almost certainly is a reasonable accommodation – “unless [the employer] can show undue hardship. The employer may consider the impact on its operations caused by the initial 12-week absence, along with other undue hardship factors”

EEOC Enforcement Guidance on Reasonable Accommodation and Undue Hardship under the Americans with Disabilities Act (2002)][1]

• Six (6) months of additional leave is likely unreasonable and not required by the ADA.

• Hwang v Kansas State University, 753 F3d 1159, 1161 (10^th Cir 2014) – “It perhaps goes without saying that an employee who isn’t capable of working for [six months] isn’t an employee capable of performing a job’s essential functions—and that requiring an employer to keep a job open for so long doesn’t qualify as a reasonable accommodation” under the Rehabilitation Act;

• EEOC Enforcement Guidance, supra – “An employer is seeking a reassignment for an employee with a disability. There are no vacant positions today, but the employer has just learned that an employee in an equivalent position plans to retire in six months. Although the employer knows that the employee with a disability is qualified for this position, the employer does not have to offer this position to her because six months is beyond a ‘reasonable amount of time’”.

What about time frames between these diverse periods?  And how does a well-intentioned employer  deal with an employee who presents “serial” doctor notes at the conclusion of each leave period further extending leave for an additional week or two each time?

Please contact attorney Robert M. Sosin in our office to discuss these and other employment issues you may have.  He can be reached at 248-642-3200, or at robert@asnlaw.com.

[1] The EEOC has not revisited this publication since the 2008 enactment of the ADA Amendments Act even though the EEOC indicated it “will be evaluating the impact of [the Amendments Act] on this document.”

Employer-Imposed Arbitration

            Many employers have inserted mandatory arbitration provisions into their Handbooks.  These provisions require employees to submit all employment-related claims to binding arbitration.  Typically, such provisions look to the American Arbitration Association (AAA) Employment Rules to govern the arbitration proceedings.  

            Until fairly recently, an employee filing an employment-related claim with AAA against his or her employer would have had to pay thousands of dollars in filing fees and arbitrator fees attempting to prosecute such claim.  However, a few years ago AAA amended its Employment Rules to require the employer to pay all but $175 of the arbitration fees if the claim was presented to AAA pursuant to an “Employer-Promulgated Plan” for arbitration.  

            Should employers continue to insist in their Handbooks on binding arbitration of employment-related claims with AAA when the cost to the employer of such arbitration (not including the employer’s own attorney fees) could be tens of thousands of dollars?  Is the historical benefit of arbitration (e.g., avoiding runaway jury verdicts) worth such a substantial monetary investment?  Are there ways of compelling arbitration without incurring such costs? 

            Please do not hesitate to contact Robert M. Sosin at Alspector, Sosin & Noveck, PLLC to discuss these and any other employment matters that may affect you.