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St. Clair Med., P.C. v. Borgiel - 270 Mich. App. 260, 715 N.W.2d 914 (2006)

Rule:

Mich. Comp. Laws § 445.774a represents a codification of the common law rule that the enforceability of noncompetition agreements depends on their reasonableness. At common law, a covenant not to compete was enforceable if it met four standards: first, the covenant must be for an honest and just purpose; second, it must be established for the protection of the legitimate interest of the party in whose favor it is imposed; third, it must be reasonable as between the parties to the contract; and finally, it must not be specially injurious to the public. Thus, a restrictive covenant must protect an employer's reasonable competitive business interests, but its protection in terms of duration, geographical scope, and the type of employment or line of business must be reasonable. Additionally, a restrictive covenant must be reasonable as between the parties, and it must not be specially injurious to the public. 

Facts:

The employee signed an employment contract that contained a restrictive covenant. The covenant stated that the employee was prohibited from practicing medicine within a seven-mile radius of the employer's two clinics. After the employee left, he allegedly breached the agreement by seeing patients within this radius. The employer then filed a breach of contract action and sought liquidated damages under the contract. The trial court granted summary disposition to the employer, and the employee sought review. 

Issue:

Was the restriction covenant valid and binding?

Answer:

Yes

Conclusion:

In affirming the trial court's decision, the appellate court determined that the covenant protected the employer from unfair competition by the employee and therefore protected a reasonable competitive business interest, as required by Mich. Comp. Laws § 445.774a. The restrictive covenant was modest in geographical scope and was not unreasonable in relation to the employer's competitive business interests. Further, the amount of liquidated damages was reasonable in relation to the possible injury suffered. The clause was included in the contract because damages associated with a physician's departure were difficult to calculate. Accordingly, a liquidated damages provision was particularly appropriate.

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