Michigan Employment Contract

What is a Michigan Employment Contract?

A Michigan employment contract, sometimes called an employment agreement is a legally binding document that is entered into by an employer and a new employee hired to work for a company. This agreement establishes the rights and obligations of each party throughout the employment relationship.

It is common to find the following issues negotiated in an employment contract:

• Compensation
• Job title and list of duties
• Employee benefits
• Employment start date
• Duration of employment
• Procedures for discipline and grievances
• Causes for termination

Michigan is an “at will” employment state. This means that all working relationships are considered to be “at the will” of both parties. An employee can leave a job at any time for any reason and likewise, an employer can fire an employee at any time for any reason.

There are two exceptions to the at will employment rule: the public policy exception and the implied contract exception.

Public policy exception. Prevents an employer from firing an employee if the termination involves an employee’s compliance with state laws like refusing to commit a crime or exercising a legal right.

Implied contract exception. Prevents an employer from firing an employee when there is an implied contract between the parties. An implied contract is created based on the representations and conduct of the parties and doesn’t require a written document.

Outside of these two exceptions, the only way to an employee can protect their job is to have a legally enforceable employment contract that outlines specific causes for termination.

Are Employment Contracts Enforceable in Michigan?

Yes. Employment contracts are enforceable in Michigan, but certain provisions of employment contracts must follow state laws to be enforceable. The employment contract clauses that are most regulated are restrictive covenants that limit an employee’s ability for future employment like a non-competition clause.

A non-competition clause prohibits an employee from working for a company’s competitor or starting a competing business after ending their employment. To be enforceable in Michigan, non-compete agreements must be reasonable. A reasonable clause will balance the need to protect an employer’s business interests without depriving an employee of their right to work and earn a living.

Courts will determine reasonableness based on the following factors:

1. Type of employment. The non-compete cannot be overly broad in limiting employment opportunities.
2. Geographic area. Non-compete agreements must define a geographic area that the employee cannot work within. If this area is too large, it will be deemed unreasonable.
3. Duration. Michigan Courts have consistently ruled that non-compete agreements with durations exceeding three years are unreasonable. The most common reasonable duration is one year.
4. Legitimate business interest. The employer must show that the non-compete serves a legitimate business interest like protecting trade secrets or customer lists.

What Are the Legal Requirements for Michigan Employment Contracts?

The legal requirements for Michigan employment contracts are very lenient. An employment contract does not have to be in writing. As long as one of the parties can prove the terms of a contract, oral employment contracts are legally enforceable.

In addition, clauses in employee handbooks may also constitute as an employment contract and give rise to certain legal rights for employees. For this reason, employers should include language in their handbook that states that the document is not a contract.

Types of Michigan Employment Contracts

There are several types of employment contracts commonly used in Michigan including:

• Permanent employment contract. Used by a company to hire a permanent employee with regular hours and compensation.
• Fixed term employment contract. Used when hiring employees who will only work for a specific period or to complete a specific job.
• Contractor agreement. Any worker who is not considered a legal employee will fall into the category of a contractor, consultant, or freelancer. These types of workers are subject to different rights and laws than regular employees.