Non-Competition agreements are being used more frequently by employers. For background on the basics of non-competition agreements read my earlier post. One of the first questions that we receive from clients who have been sued for violating non-compete contracts is "who pays for my attorneys fees." Another popular question is "do I have to pay my former employer's attorney fees." The answer to those questions can be found in the contract and under Michigan law.
The starting point for looking at these questions is Michigan law. Michigan follows the rule of most states, which is that each side pays its own attorney fees, unless there is a statute (a law) that requires the losing side to pay for the winner's attorney fees, or unless there is a contract that provides for one side to recover attorney fees.
Attorneys Fees Awarded Under the Law. Civil rights statutes often include attorney fee provisions. State statutes, such as the Elliott-Larsen Civil Right Act, the Persons with Disabilities Civil Rights Act and the Whistleblowers' Protection Act, all have provisions that require a defendant employer to pay the plaintiff employee's attorney fees if the employee wins the lawsuit. Federal laws like the Family and Medical Leave Act and Title VII of the Civil Rights Act of 1964, also state that employees who prevail may receive attorney fees. When cases involving these statutes settle, the plaintiff's attorneys have the leverage of the attorney fee shift to help achieve a better settlement. The non-compete statute does not contain an attorney fee provision.
But attorney fees may be available to the employer if the employment contract or non-compete contract allows for the recovery of such fees. Because non-compete agreements are written by the employer or employer's counsel, it is rare to see a non-competition agreement that does not contain such a provision. It may state the employer is entitled to its reasonable attorney fees if it prevails in the lawsuit. Or it might simply state that the employer is entitled to attorney fees if the employee violates the agreement. Employers and their counsel have leverage because of their contract right to receive attorney fees if they prevail (win) the lawsuit. Even a small victory, such as convincing a court to enter a limited retraining order against the former employee, may result in a award of attorney fees for the employer counsel.
The Offer of Judgment Rule. It is best not to sign an agreement that includes such an attorney fee provision. But for employees who have been sued under one of these contracts, there is a tool available that may even the odds on attorney fees. The Michigan Court Rules allow for either a plaintiff or a defendant to make an "offer of judgment." This means that an employee could make a early settlement offer that is less than what the employee will pay in attorney fees through this offer of judgment rule. For example, the employee's counsel could send an offer to allow entry of judgment (for all sums, including attorney fees) of $1,000. If the defendant accepts this offer, the case is resolved and the defendant employee must pay the $1,000 offer. If the defendant ignores the offer, the company must receive an award in excess of the offer, or it faces the risk of paying the attorney fees of the plaintiff employee. The court rule is known by attorneys as: MCR 2.405
Clients are often reluctant to make any type of settlement offer in the early stages of a non-competition lawsuit. But you and your attorney might consider this strategy to avoid paying attorney fees to the other side.