Let’s take a look at a Michigan case of an ex-employer enforcing a non-competition agreement. This one may hit close to home as it involved two local swim schools, Goldfish Swim School and Aqua-Tots. I’m sure you’ve heard of at least one of them, or noticed them popping up everywhere. They’re very popular indoor swim schools that focus on getting children accustomed to water and teaching them to swim at an early age.
The facts are very simple: Steve Ogg, a Goldfish swim instructor signed a non-competition agreement when he was first hired. He subsequently left and immediately went to work for Aqua-Tots. Goldfish sued for breach of contract and requested a temporary injunction entered to prevent Ogg from working for Aqua-Tots until final resolution of the matter.
The injunction request was denied and Goldfish appealed to the Michigan Court of Appeals. The Court of Appeals ultimately ruled in favor of Ogg/Aqua-Tots.
The non-competition agreement failed to hold up for a number of reasons:
- Ogg was a low level employee that was not privy to confidential information.
- The agreement with a low level employee did not protect a “reasonable competitive business interest.“ Goldfish never proved that its teaching methods were a trade secret or proprietary. The court determined that Goldfish never kept their technique or process secret. In fact, Goldfish put its training method in the public domain because the public and the students’ parents could view the lessons and glean the methods; they put it into the public domain by teaching it to the world. Further, there was no evidence that Ogg had ever taken the Goldfish instruction manual with him.
- Goldfish did not prove that it was or would be irreparably harmed by Ogg teaching at a competitor. No customers followed Ogg to his new place of employment and he did not disclose or teach Goldfish’s swimming methods at Aqua Tots. Even if Goldfish’s swimming techniques were proprietary, because Aqua-Tots is a franchisee Aqua-Tots would not have even been able to use information from Ogg because it was bound by its franchise agreement to teach swimming in a certain way.
The court did uphold the non-competition agreements prohibition on Ogg soliciting students from Goldfish. However, because there was no proof this had even occurred, there was no reason to grant any injunctive relief.
So what’s the lesson here? You can’t require every employee to sign a non-competition agreement and expect it to protect your business. You need to discuss with your attorney which types of employees require a non-competition agreement (maybe a confidentiality agreement is more appropriate) and what documents are the best fit for your company.
Questions on non-competes? Call me 248-455-6500 and or email me firstname.lastname@example.org and we can talk.