Tuesday, December 2, 2014

Non-Compete Agreements – Is Your Non-Compete Enforceable Under Michigan Law?

By:      Andrew Burrows

Whether the purpose of an agreement is to retain work done by an employee, to protect confidential company information, or to preserve the business of customers, non-compete agreements are an important tool used by many businesses to protect themselves from the actions of a former employee or independent contractor. There is no doubt that a non-compete agreement can be a practical way to protect the interests of your business; however, the protection a non-compete can provide loses its benefit and can potentially harm the company if it is deemed unenforceable. Under Michigan law, a non-compete agreement must:

1.      Protect a reasonable competitive business interest;
2.  Be reasonable in duration, geographical area, and type of employment or line of business;
3.      Not be specifically injurious to the public; and
4.      If it contains a liquidated damages clause, that it be reasonable.

What Constitutes a Reasonable Competitive Business Interest?
The first objective of a valid non-compete agreement is to identify the business interest that needs to be protected. This means that “cookie cutter” non-competes will rarely work. Instead, the agreement should be narrowly tailored to protect the specific business interest, whether this be a trade secret, customer relationships, or something else specific to the business. Drafting specific non-competes that are tailored to specific circumstances will ensure that the non-compete is not overbroad, which would render it unenforceable.

Duration, Distance, and Scope of the Agreement
The duration, geographical area, and type of employment restricted under the non-compete must also be narrowly tailored to protect the business interest mentioned above. Reasonableness depends entirely upon the industry and the nature of the interest. Generally speaking, reasonable duration is somewhere between six months to years; however, if the business interest that is being protected warrants additional duration, it can extend to several years. Similarly, distance and scope are dependent on the industry and the interest seeking protection. For instance, it would be reasonable to restrict a doctor from practicing in pediatric care within Livingston County, but it will almost definitely be unreasonable to restrict a doctor from practicing at all within the state of Michigan. Again, reasonableness dictates an assessment on a case-by-case basis.

Non-Competes and Public Injury
Non-competes can be considered unenforceable even if they are reasonable as to the interest to be protected and as to the duration, area, and scope. This occurs when a non-compete, if enforced, would cause detriment to the public. For example, a non-compete that prohibits an oncologist from practicing in Livingston County for six months may be unenforceable for reason of public injury. It may be impractical or impossible for patients needing a very specific type of medical care to see another doctor in the area or to switch doctors in the middle of treatment. This is not true for most agreements; however, it is another pitfall to be aware of when drafting a non-compete.

Should I use a Liquidated Damages Clause?
Liquidated damages are an amount the parties designate during the formation of a contract if one of the parties breaches the contract.  A liquidated damages clause, while not a necessary component of a valid non-compete, is a completely valid option if used properly. Liquidated damages clauses are often misused and are thus struck from the non-compete. First, a liquidated damages clause must be a reasonable assessment and not excessive given the injury suffered. Another way to put this is the purpose of the liquidated damages clause must not be to act as a penalty, but rather to be a reasonable assessment of damages to the business in the event of a breach. Additionally, these clauses have been enforced by Michigan courts only if damages are uncertain, difficult to ascertain, or purely speculative in nature. These provisions are most likely valid in employment situations, where the damage of an employee violating the non-compete is almost impossible to quantify.

The proper use of a non-compete agreement still remains an effective tool that a savvy business owner has at his or her disposal to protect the interest of their business. It is of great importance, however, to ensure that the document is prepared by a competent attorney. A non-compete is useless if it is unenforceable.

Tuesday, October 28, 2014

“Fish Shredding”: The New White-Collar Crime

By:      Andrew Burrows

One of the most interesting and amusing cases on the docket for the U.S. Supreme Court this coming term has some fishy implications. In Yates v. United States, the Supreme Court will contemplate the application of 18 U.S.C. § 1519, a provision of the Sarbanes-Oxley Act, to the alleged destruction of evidence in violation of this provision by a commercial fisherman.

What is the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act or “SOX” was enacted in late 2002 in the wake of several large-scale accounting fraud scandals in the early 2000s, which involved high profile corporations such as Enron, Tyco, and WorldCom and the Arthur Andersen Accounting Firm. SOX was enacted with the broad purpose of protecting investors from the fraudulent acts of accounting firms and businesses. The act requires these companies and firms to adhere to stricter standards regarding their financial information and documents. One of the many ways this goal is achieved is the broad prohibition against the knowing destruction of any tangible objects with the intent to impede an investigation under §1519 of SOX.

Why does SOX matter?
While largely in place to regulate public companies, SOX has several provisions that apply to private companies as well. Section 1519 of the Act, regarding liability for the destruction of records, documents, or tangible objects is one of these provisions. Thus, §1519 is applicable to every company, whether public or private, large or small.

How does SOX apply to Yates?
Yates, a commercial fisherman and boat captain was issued a citation by a Florida wildlife deputy for catching fish that were smaller than legal size. Upon receiving a citation for the undersized fish and being directed to return to shore, Yates ordered his crew to throw the fish overboard in an attempt to thwart the investigation into the violation, and for all practical purposes, to destroy the evidence. At trial, Yates was found guilty under §1519 of SOX for destroying or concealing a “tangible object with intent to impede, obstruct, or influence” the government’s investigation into his catching of undersized fish. On appeal, the 11th Circuit affirmed this conviction, stating that a fish is, in fact, a “tangible object” under the plain meaning of §1519. Thus, the ultimate question for the Supreme Court is whether, under the plain meaning of §1519, a fish is a “tangible object”, or if §1519 simply applies to tangible objects relating to recordkeeping materials, such as computers or storage drives.

What are the Implications of Yates?
Due to the importance of SOX from a regulatory standpoint, the outcome of Yates has implications for businesses of all types and sizes, not just those who happen to be commercial fishermen. If the Supreme Court affirms the ruling of the 11th Circuit, it would strengthen the overall power of SOX and, in turn, increase its regulatory power over public and private businesses. More narrowly, if throwing away fish is deemed equivalent to shredding a document, businesses will need to be much more careful with what they throw away.

Tuesday, August 19, 2014

Inside this Issue:

Messes that People Leave Behind

The Dangers of Do-It-Yourself Contracts

The Risks of Failing to Incorporate a Business


By:  Adrienne Knack

Frequently  we have clients in our office who have recently (or not so recently) lost a loved one – a spouse or a parent, in particular.  Often, the first thing out of the client’s mouth is, “I thought she had everything taken care of, but I guess not.”  As if the loss of their loved one isn’t enough for clients them to deal with, they are now left to sort out the decedent’s affairs. This process can have major implications and is often very overwhelming.

The following are some examples of messes that people leave behind for their loved ones to clean up after they die:

This is a very common problem that we assist clients with following the death of a loved one.  There is a variety of complications when it comes to real estate.

Spouse (or adult child) is on deed, but not on mortgage and/or note
This is the issue that we see most often when dealing with a decedent’s estate.  Often, due to creditworthiness or other family issues, one spouse will obtain a mortgage for the marital home, but both spouses will be on the deed.  For simplicity’s sake, let us assume the husband is on the mortgage.  The husband believes that if he predeceases his wife, she will be able to stay in the house because she is on the deed.  This is incorrect.  What will happen to the mortgage?  If the wife is able to make the mortgage payments, she will have to go through a very long, drawn out process to assume the mortgage.   If the wife is unable to make the payments, she will most likely lose her house.  If she is cognizant, timely, and works with an attorney, she may be able to enter into a deed in lieu of foreclosure, so the debt will be addressed.  Sometimes, she may even be able to get some money from the mortgage company in exchange for the house.  If the wife does not act in time or in the proper manner, she will lose the house and may have the mortgage company pursuing her husband’s trust and estate in court for the balance of the mortgage.

House is not addressed within proper estate planning documents
If a person passes away and has not properly planned for what will happen with their house, issues will arise.  For this example, let’s assume the decedent is a widowed mother with one adult son.  If there is a mortgage on the house, the son (unless someone else is designated in the mother’s estate planning documents) will be left to deal with the mortgage company similar to the example above.  Regardless of whether there is a mortgage on the property, the son will have to open a probate estate in order to have the court decide what should happen to the house (and any other probate assets).  People tend to assume that if they only have one child, everything will just go to that child.  While that is most likely correct, it isn’t automatic.  The surviving child will have to go through the long, expensive, painful process of probate court.

Lost/forgotten assets
We often have clients in our office with boxes upon boxes of their deceased parent or spouse’s old financial statements, tax returns, etc.  If they are unable to find all of the decedent's financial records, they might  be unable to trace all of his or her assets.  If assets cannot be located, heirs might not get everything they're entitled to, and the unclaimed assets will eventually revert to the State.  It is best to make sure there is a least one person who has a list of all assets, accounts, and policies, including financial institution or insurance company, account or policy numbers, and beneficiary information.

Failure to name beneficiary
If a person dies and leaves assets behind that do not have a co-owner or beneficiary, the asset will have to be probated.  The probate process is very slow and can be expensive.  It is also usually quite taxing on the person or persons involved in the process.  Additionally, the court will decide which heirs will get what.  Oftentimes, the distribution does not match the wishes or the intention of the decedent.  By the time the heirs are finished with probate, there might be very little of the asset left after expenses.  We recommend to clients that they review the beneficiary designations on all of their accounts and policies.

A growing number of people leave estates with insufficient assets to pay off debts.  If that happens, the person in charge (usually the personal representative or executor) can attempt to negotiate lower amounts with creditors.  If they can't agree, the personal representative can ask a court to declare the estate insolvent.  Certain types of creditors will have priority over whatever is in the estate.  For example, state laws may require a secured debt, such as a mortgage, to be paid in full, ahead of a credit card.

In an ideal situation, the personal representative will be aware of all of the decedent’s debts and pay them out of the estate. If a debt, such as a tax bill, appears after the estate is settled and heirs have already received their money, it might be impractical to try to recoup monies from the beneficiaries to satisfy the liability What if the heirs have already spent the money? Their liability is generally limited up to the amount they inherited.  It is wise for the personal representative to hold back money out of an estate for at least a year to address such occurrences.  Otherwise, creditors could pursue the estate -- as well as the personal representative and the beneficiaries.

Missing/lost estate planning documents
We always encourage our clients to let their loved ones know they have used an attorney to place their affairs in order.  If no one is aware, the loved ones are left to search for any such documents.  They may check the decedent’s house, safety deposit box, or have to try to track down the decedent’s past advisors.  If a will and other estate planning documents cannot be located, it will be up to the heirs to open probate and have the court decide what should happen to the decedent’s assets, in accordance with Michigan’s intestacy statutes.

Incomplete or out-of-date estate planning documents
We get many clients in our office who have had a change in circumstances and wish to update their estate planning documents.  Such situations include a divorce, death, birth of a child or grandchild, a change in wishes, or a change in family circumstances.  They wish to update their named fiduciaries or update who in the family gets what.  This can often be done by simply amending older documents.  It becomes a problem if one of these changes occurs and documents are not updated.  If changed wishes are not put down in writing in a properly executed document, these changed wishes will (may) not be followed.  All that the heirs will have to go on are the out-of-date documents, which no longer reflect the wishes of the decedent.  Unfortunately, the documents are legally binding and must be adhered to.  This is how an ex-daughter-in-law ends up owning a part of your family cottage.  If there is a change in circumstances, it is always best to discuss with your attorney whether or not formal changes need to be made.

Surprisingly, people often do not realize the battle they have initiated by leaving assets to children unequally.  Clearly, there are reasons that clients choose to do this, and we do not judge them for this, but we do remind them that it could cause problems in the family following their passing.  In most cases their decision will not be anything new for the family.  But sometimes, it is a shock to the decedent’s children.  This often causes animosity to the point of taking legal action, whether or not it is warranted or has a legal basis.  Even if assets are left to children unequally, with the proper estate planning documents in the proper manner, it will not prevent the child who feels jilted from filing a lawsuit.  Their siblings will have to pay attorney fees and costs to fight this frivolous lawsuit.  Usually, the damage done cannot be overcome?  If that is a risk the client is willing to take, it can be done, as long as it is a known and understood risk.

The loss of a loved one is difficult enough on its own.  It is even more painful when it is coupled with a legal mess that needs to be resolved.  These are only a handful of the multitude of messes that people can leave behind.  It is best to have these issues addressed during life, so that loved ones are left to grieve in peace without bill collectors breathing down their neck or an impending lawsuit.


By:  Ashley Prew

We often hear that business owners have a variety of reasons for believing their business does not need to operate as a valid business entity.  Unfortunately, these reasons typically turn out to be misconceptions.

When incorporation is done properly and thoroughly, it provides the governing documents that the corporation will use to conduct its business.  There are several advantages to incorporating a business, including protection from personal liability and favorable tax treatment.  If an individual is conducting business as a sole proprietor or if multiple business owners are acting as a partnership, Michigan law does not provide the business owners protection from legal liability. 

It is important to understand that if a business entity is not established properly, legally, or formally in Michigan, the business owner or owners are automatically assumed to be acting as a sole proprietor or a partnership.  This article discusses three misconceptions that we frequently hear about incorporation and will explain the risks involved with acting as a sole proprietor or partnership.

Misconception 1 – The business does not make enough money to incorporate.
We often hear from budding entrepreneurs that they do not want to invest the time and effort into incorporating because they do not know if their business will be successful and they do not yet have a high level of profit.  This is one of the most dangerous misconceptions for business owners because the level of risk associated with conducting business is in no way related to the amount of money a business makes.  If a business owner conducts business without a proper entity and a judgment is obtained against the business for an accident or other matter, the business owner’s personal assets will be used to satisfy the judgment.

Establishing a valid corporation and maintaining the entity protects business owners from personal liability for the actions and occurrences in the business.  Creating a separate business identity through incorporation is one of the key factors a judge will use to determine if the business owner will be personally liable for the actions of the business.  In addition, obtaining S Corporation status has favorable tax implications for the business owner.  It is untrue that maintaining the corporation is difficult or expensive.  The yearly requirements to maintain the C corporation are minimal and we educate business owners on the steps necessary to maintain their business entity from year to year.

Misconception 2 – The business does not need to be incorporated because I have insurance.

Insurance policies help protect businesses and business owners by providing coverage for the risks of conducting business.   Insurance coverage’s, however, almost always come with coverage limits.  If the amount of a judgment exceeds the amount of insurance coverage, the business owner will be liable for the deficiency.  Additionally, depending on the type of insurance coverage, some types of claims may not be covered at all by the business owner’s policy.  In this case, the business and the business owner would be liable for 100% of a potential judgment.

Misconception 3 – I am protected because I filed a DBA with the county.

Filing your business name as a DBA or “Doing Business As” with the county where your business is located does nothing to protect the business or you from liability.  The only thing a DBA protects is the business name in that county.  A DBA is not a legal entity and only provides that another business will not be able to conduct business under that business name in the county.  If a business operating as a DBA is sued and a judgment is obtained, the business owner will most likely be held personally liable for the amount of the judgment.  This means that the person or entity that obtained the judgment can take personal assets and income, such as the business owner’s home and financial accounts, to satisfy the amount of the judgment.


Business owners should have their business entity reviewed to determine if it is the most effective way to do business, and they are legally protected. 


By:  Tim Williams

Case No. 1
For the past 26 years, Lois and Dale have run their own printing business. Their customers are mostly medium-sized businesses. Like many successful entrepreneurs, they wear many hats – HR department, payroll processor, accountant, and chief technical officer, to name a few. They also dabbled in the law, as business life grew more sophisticated into the 21st century and their company needed contracts. Lois and Dale wrote most of their own agreements. They “borrowed” language from others, paid for access to websites offering “custom” documents, and even asked the other party in the transaction to prepare the agreement.

In 2013, Lois and Dale decided it was time to sell the Company. A buyer was found and agreed to pay $600,000 for the business. The buyer handed an agreement to Lois and Dale, who briefly reviewed it. The closing took place, with a $100,000 down payment and monthly payments for the balance over six years.

Two months after the closing, the buyer discovered that Lois and Dale had never retained an attorney to protect their Company’s name and identity. The buyer then received a letter from the law firm for a patent troll indicating the Company was being sued for violating a patent registration. The computer processes used by the Company to produce printing plates violated patents going back to 1981.

The buyer then realized that he had not complied with Michigan law to escrow the amount of the Company’s final taxes not yet paid by the closing, and was subject to paying those taxes, plus interest and penalties.

The buyer ceased making the monthly payments to Lois and Dale, who were living on the payments to support themselves. Lois and Dale’s lives were dramatically altered by this and they were threatened with being reduced to living on Social security and their modest savings.

All of this could have been avoided if Lois and Dale had retained a competent attorney to assist them throughout their years in business and with the sale of their business. The fees would have been a small fraction of the $500,000 they risked losing on the sale of the business when the buyer ceased making payments.

Case No. 2
Troy and Melinda had a successful collector car hauling business. They needed more room for the over-the-road car haulers their company owned, as well as for the cars their customers had them transport. Troy asked his brother if he knew of any good realtors. Troy and Melinda entered into a buyer’s agency agreement with a realtor (who was friend of Troy’s brother) to find them suitable properties where they could relocate the business.

The realtor found them a commercial parcel that Troy and Melinda decided to purchase.  The parcel had a unique feature.  Many years prior, in exchange for agreeing to allow an interstate pipeline to store natural gas under the property, the  prior owner  received a continuous supply of free natural gas. The continuous supply of free natural gas factored heavily into the price paid by Troy and Melinda for the property.

In addition, historically, there was an industrial facility adjacent to the property that had an unrecorded, informal easement to cross the property to get to its rear warehouse. In exchange, the property’s sewer was connected to the industrial plant’s sewer. There was no written agreement for this either.

Some months after the closing, the interstate pipeline did its annual search of property transfers affecting its underground gas storage facilities and discovered that the property had been purchased by Troy and Melinda. The pipeline company stopped supplying free natural gas to the property because the free natural gas agreement was not transferable. Troy and Melinda did not have access to natural gas from a utility so they had to begin using propane. The result was an increase in their monthly costs of $850 per month.

Subsequent to the natural gas debacle, the industrial plant next door wrote to Troy and Melinda informing them that it would be connecting to the new sewer line along the main road on the other side of the plant and the sewer line servicing the property would be abandoned.

As a result, in addition to the $850 per month increase on costs, the value of the property fell by $285,000.

Troy and Melinda had no recourse against the seller or the realtor, of course, because the documents absolved the seller and realtor of all liability.

All of this could have been avoided if Troy and Melinda had relied upon a knowledgeable attorney to assist them with the transaction. Instead, they worked with someone they knew as opposed to someone who knew the law.






Wednesday, August 20: Caerusnet facilitated networking group at 7:30 a.m. at the Brighton Lions Club building.

Wednesday, August 27: Caerusnet facilitated networking group at 7:30 a.m. at the Brighton Lions Club building. 

Saturday, September 13Adrienne Knack and Michael Southgate, from Edward Jones will be hosting a free seminar titled Legacy and Estate Planning, the Basics and Essentials at the Brighton Lions Club at 9:00 a.m.  

Sunday, October 12Howell Rotary Club's Tour de Livingston.  Come see us at the GM Proving Grounds hospitality tent! 

Every Monday:  Howell Rotary at noon at the Howell School Administration Building

Every Tuesday:  Brighton Rotary at noon at the Brighton Community Center

Every WednesdayPreferred Professionals BNI at 7:00 a.m. at the Howell Opera House

Every Thursday: Fenton Network Connections BNI at 7:00 a.m. at the Fenton Community Center

Every Friday:  Livingston Sunrise Rotary at 7:30 a.m. at the Genoa Medical Center

E-mail us for more information about these upcoming events!




10299 Grand River Rd., Suite I
Summerwood Center
Brighton, MI  48116
Phone:  (810) 534-0700
Fax: (810) 534-0701

146 Locust
Cadillac, MI  49601
Phone:  (810) 241-1500
Fax: (866) 867-5616

Mt. Clemens
49 Macomb Place
Mt. Clemens, MI  48043
Phone:  (810) 241-1500
Fax: (866) 867-5616

Copyright © 2014 Timothy L. Williams & Associates, P.C., All rights reserved.
Our mailing address is:
Timothy L. Williams & Associates, P.C.
10299 Grand River Road
Suite I
BrightonMI 48116