Michigan House Bill 4040 is built around a deceptively simple drafting move: it stops talking only about “employees” and starts regulating noncompetes through a broader category called “workers.” That shift matters because many organizations still treat restrictive covenant risk as something that lives mainly in the employment agreement template. In practice, businesses use a whole family of documents to control competition risk offer letters, employment agreements, independent contractor agreements, internship letters, apprenticeship paperwork, volunteer acknowledgments, equity and bonus plans, separation agreements, and even “training repayment” or “liquidated damages” clauses that are meant to discourage departure. A bill that changes who is protected, and how a “noncompete” is defined, has consequences across that entire template library, not just the one document HR uses most. ¹
HB 4040 was introduced in the Michigan House on January 30, 2025 and, as of the legislative information published for the bill, it proposes amending Section 4a of the Michigan Antitrust Reform Act (MCL 445.774a), the statute that has long served as Michigan’s statutory “home base” for employee noncompetes.¹ The publicly posted bill description characterizes it as a proposal concerning “certain noncompete agreements” that would prohibit employers from requiring employees to enter into them unless conditions are met, and it lists the amendatory target as Section 4a of 1984 PA 274.¹ That framing sounds narrow at first blush, but the introduced text and the way the bill is summarized by bill-text repositories describe a substantially broader approach that centers on “workers” and largely prohibits noncompetes with them, subject to limited exceptions.²
The practical reason to care, especially if you manage templates, is that “worker” is not simply a synonym for “employee.” In the introduced text, “worker” is described to include an employee, an independent contractor, an extern, an intern, a volunteer, an apprentice, or a sole proprietor who provides a service to a business.² In other words, the bill’s protection is not limited to W-2 employees and does not depend on how you label the relationship in the agreement. If your template strategy has ever relied on saying “this is a contractor, not an employee, so our restrictive covenants are more likely to stick,” the core definitional move in HB 4040 is designed to make that strategy irrelevant for noncompete purposes. ²
Michigan’s existing statutory framework has been familiar to employers and drafters for years. Section 4a of the Michigan Antitrust Reform Act states, in substance, that an employer may obtain from an employee an agreement or covenant that protects the employer’s reasonable competitive business interests and expressly prohibits the employee from engaging in employment or a line of business after termination, so long as the agreement is reasonable in duration, geographic area, and the type of employment or business.³ It also gives courts the ability to limit an unreasonable agreement to render it reasonable and then enforce it as limited, which has historically shaped how Michigan noncompetes are negotiated and litigated.³
That baseline produces a predictable template culture. Businesses draft noncompetes expecting that a reasonable analysis will be the main battlefield, and they calibrate duration, geographic scope, and activity restrictions accordingly. Templates often include fallbacks, severability, and judicial modification language, all built around the idea that Michigan courts may narrow and enforce rather than invalidate entirely. As a result, many template sets reflect a spectrum of restrictions, with higher-risk roles getting broader restrictions and lower-risk roles getting narrower ones, and with independent contractor templates sometimes containing restrictions that mirror or exceed the employee versions. ³
HB 4040, as reflected in the text introduced available through bill-text repositories, points in a different direction. Instead of a permission structure that says “reasonable noncompetes are allowed,” the bill is described as generally prohibiting businesses from entering into, obtaining, enforcing, or representing the existence of noncompete agreements with workers, while recognizing limited exceptions. ² That shift does not merely tweak language; it changes the template design problem. If the legal environment moves from “draft it reasonably” to “don’t use it at all except in narrow circumstances,” then the existence of the clause becomes the risk sometimes even before you try to enforce it. ²
The introduced definition of “worker,” as reported in the bill text, is expansive in a way that is deliberately practical: it sweeps in the categories that companies actually use. It captures the employee you hire, the contractor you engage, the intern you bring in for a semester, the extern who shadows and contributes, the apprentice who is learning and producing, the volunteer who provides services, and the sole proprietor consultant who is “just one person” but who may have meaningful access to client relationships or sensitive information.² This is not a conceptual definition that invites a multi-factor test; it is a list-based definition keyed to service provision for a business.²
That drafting choice matters because classification fights are often slow and expensive. Whether someone is an “employee” can depend on context: wage-and-hour law, unemployment law, tax law, and benefits law all have their own tests and priorities. Businesses sometimes assume they can reduce restrictive covenant exposure by pushing people into “contractor” status or by relying on educational framing for interns and externs. A definition that explicitly names independent contractors and interns as “workers” cuts off the most common classification-based workaround for noncompete restrictions. ² For template teams, that means you cannot treat your contractor template as an alternate channel for noncompetes, and you cannot hide a restraint in an internship letter on the theory that “they’re not really an employee.” ²
Even more consequential for template drafting is how “noncompete agreement” is described in the introduced text. Bill summaries and text repositories describe HB 4040 as reaching agreements that prohibit a worker from, penalize a worker for, or function to prevent a worker from seeking or accepting work with another business after the relationship ends, or from operating a business after the relationship ends. ² A definition written this way is meant to defeat clever drafting. If a clause is designed to deter competition by imposing a cost, or by making the path to competitive work so painful that it is effectively blocked, the clause risks being treated as a noncompete even if the word “noncompete” never appears. ²
This is where template audits become complicated. Many agreements contain terms that are not “classic noncompetes” but can function like them, especially when tied to money. Deferred compensation provisions sometimes condition payouts on post-termination behavior. Training cost provisions sometimes demand repayment if a person leaves quickly, and some versions scale repayment based on where the person goes next. Liquidated damages clauses sometimes set a fixed dollar amount if a restrictive covenant is violated, and depending on how they are written, they can operate as a deterrent rather than a good-faith estimate of harm. Even non-disparagement or confidentiality provisions can be drafted so broadly that they effectively prevent a person from working in an industry because they cannot realistically perform the job without using general knowledge that the company insists is confidential. ²
When a bill uses “functions to prevent” language, the drafting and risk analysis becomes substance-first. Template teams must ask what the clause does in real life, not what it is called. If the clause predictably discourages a worker from joining a competitor because the worker will be penalized, sued, or forced to forfeit money, the clause starts to look like the target of a functional definition. That is a different exercise than simply checking whether the template has a section titled “Noncompetition.” ²
It is important not to misunderstand the definition shift as somehow weakening protection for employees. Under current Michigan law, an employer may obtain a reasonable noncompete from an employee. ³ What changes under the “worker” approach is not that employees lose coverage; it is that employees lose exclusivity. For template purposes, the bill’s approach means you should stop thinking “the employment agreement is where the noncompete risk lives” and start thinking “any document that governs services to the business is potentially in scope.” ²
In practice, that means your offer letter template matters more than you might think, because offer letters sometimes include short-form restrictive covenants, incorporation-by-reference language, or acknowledgments that the employee will later sign a noncompete. It means your equity and incentive plan documents matter, because they often include restrictive covenants tied to vesting, forfeiture, clawbacks, or post-termination conditions. It means your separation agreement matters, because it sometimes reaffirms or expands prior restrictions in exchange for severance. And it means your confidentiality agreements matter, because many organizations have used confidentiality language as a “belt and suspenders” companion to noncompetes, sometimes drafted aggressively enough that it operates like a ban on industry employment. ²
Under a worker-focused prohibition regime, template discipline becomes the main compliance control. If individual managers can download “a contractor agreement template” from a shared drive that contains a noncompete paragraph, the organization can create risk even if HR has modernized the employment agreement. The compliance question becomes “do we have any template in circulation that creates a prohibited restraint,” not “is our flagship employment agreement reasonable.” ²
Independent contractor agreements are often drafted with a mindset that the contractor is a business, and that business-to-business contracts can be more restrictive than employer-employee arrangements. HB 4040’s described “worker” definition directly challenges that mindset by including independent contractors within the protected class. ² This is a major template inflection point because contractor agreements often contain some of the broadest restrictive language in a company’s document set, sometimes extending beyond direct competition into “similar services” for “any competitor” in large geographic regions. ²
Once contractors are treated as “workers,” the question becomes whether the same prohibitions that apply to employees apply to them as well. If the bill is enacted as described, the contractor template would need to be rethought from the ground up. The clause you previously relied on to keep a contractor from taking a similar project across the street may no longer be a reliable tool, and the organization would have to lean more heavily on confidentiality, trade secret protection, and carefully drafted nonsolicitation provisions to the extent those tools remain permissible and are not drafted to function as a noncompete. ²
There is also a broader governance implication here. Organizations sometimes handle contractors through procurement, operations, or department-level contracting processes rather than through HR. If the compliance change is communicated only to HR, contractor templates may remain noncompliant in the wild. A bill that reaches “workers” forces cross-functional template governance because the relevant templates are controlled by more than one team. ²
Internship and apprenticeship programs are often treated as low risk from a restrictive covenant perspective because they are short-term and sometimes framed as educational. But short-term placements can create outsized risk: interns and externs may be placed in product, engineering, marketing, client service, or other functions where they are exposed to proprietary processes, strategy, pricing, or roadmap information. Organizations sometimes respond to that exposure by inserting noncompete-like restrictions into internship letters or program acknowledgments, especially when the intern is likely to return to school and later apply at a competitor. ²
HB 4040’s worker definition, as described in the introduced text, includes interns, externs, apprentices, and volunteers. ² That is a signal that these categories were not accidental inclusions; they are specific targets of the idea that businesses should not restrain post-relationship work for people who provide services, even in training or quasi-educational roles. For template teams, this matters because internship and apprenticeship documents are often maintained separately from the main employment templates and may not benefit from the same legal review cadence. ²
It also matters because “intern” is a word with legal significance in other contexts, especially wage and hour law. Under U.S. Department of Labor guidance, courts have used the “primary beneficiary test” to evaluate whether an intern or student is an employee under the Fair Labor Standards Act, focusing on the economic reality of who benefits from the relationship.⁴ But a bill that defines “worker” by enumerating interns can make that wage-and-hour classification question less important for restrictive covenant purposes. Even if an intern is not an “employee” under wage law, the person may still be a “worker” under a noncompete statute that names intern directly. ² That creates a drafting takeaway that template teams should not miss you cannot rely on the intern’s wage classification to justify a restraint, because the restraint regime may be independent of the wage regime. ²
Volunteers raise additional caution. Businesses sometimes use “volunteer” loosely, including in contexts where the relationship is not the classic public or charitable volunteer relationship. If a document uses the term “volunteer” but the person is providing meaningful services to a business entity, that person can fall into the very category that HB 4040 is described as protecting. ² When templates are drafted casually for “informal help,” the organization can accidentally create a document that contains a prohibited restraint. ²
One of the most easily overlooked inclusions in the worker definition is the sole proprietor who provides a service to a business. ² Many organizations treat sole proprietor consultants as “vendors,” and vendor agreements are often managed outside HR. Yet sole proprietors frequently do the kind of work that companies most want to protect strategic consulting, fractional executive services, sales enablement, business development, specialized IT services, or niche creative work that touches brand strategy and campaign planning. ²
When a bill explicitly treats those individuals as protected “workers,” it forces organizations to decide whether their vendor templates contain language that functions as a post-engagement restraint on the person’s ability to work elsewhere. In a sole proprietor scenario, a clause that says “you may not provide similar services to any competitor for one year” is not merely a competitive protection clause; it can be a livelihood restriction. That is exactly the kind of real-world effect that functional noncompete definitions are often written to address. ²
If HB 4040 becomes law in a form consistent with the described introduced text, template risk becomes less about drafting a “reasonable” noncompete and more about preventing noncompete-like restrictions from appearing in any agreement with a covered person. Bill summaries and legislative tracking descriptions characterize the proposal as prohibiting businesses from entering into, obtaining, enforcing, or representing the existence of noncompete agreements with workers, with limited exceptions. ² In that environment, the compliance failure can occur at the moment a prohibited clause is presented for signature, not only at the moment it is enforced. ²
That shifts the template best practice from “calibrate restrictions by role” to “remove prohibited concepts across all worker-facing templates and replace them with permissible protections.” It also shifts attention to the so-called “side documents” that are often overlooked in audits. Confidentiality agreements need review not because confidentiality is banned, but because confidentiality can be drafted so broadly that it becomes a functional restraint on future work. Incentive plans need review not because bonuses are prohibited, but because forfeiture and claw back provisions can be drafted in a way that penalizes competitive employment. Training reimbursement agreements need review not because reimbursement is categorically improper, but because repayment triggers can be designed to punish competition rather than to reimburse legitimate costs. ²
Template teams also need to look at the subtle drafting choices that can convert permissible protection into an impermissible restraint. A nonsolicitation clause can be written narrowly to prevent targeted poaching of clients or employees, or it can be written so broadly that it effectively prevents the person from working in the industry because every meaningful relationship is swept into the definition of “solicit.” A confidentiality clause can be written to protect trade secrets and genuinely confidential business information, or it can be written so expansively that it claims ownership over general skills and knowledge. Under a functional definition of “noncompete,” overly broad versions of these clauses invite the argument that they “function to prevent” future employment, especially where the worker’s job in the industry inherently requires using general know-how. ²
The central drafting challenge in a worker-centered noncompete prohibition regime is that organizations still have legitimate interests to protect. Trade secrets exist. Client goodwill is real. Investments in relationships, training, and strategic planning can be substantial. A modern template library has to protect those interests without using tools that the law may disallow, and without using substitute clauses that end up looking like disguised noncompetes. ²
This is where being honest about what a template clause is trying to achieve becomes essential. If the real goal is to prevent someone from working for a competitor, then any clause designed to impose a cost on that choice is likely to be tested against the functional noncompete definition.² If the real goal is to prevent disclosure of specific confidential information or misappropriation of trade secrets, then a carefully drafted confidentiality and IP framework can be aligned with that goal without restraining future employment. If the real goal is to prevent unfair competitive conduct such as taking client lists, soliciting current clients using confidential pricing strategy, or recruiting teams using inside information, then narrowly tailored nonsolicitation and confidentiality terms can target that conduct rather than banning competition itself. ²
The difference between these approaches is operational. Template language that is specific about what information is protected, what relationships are covered, and what conduct is prohibited tends to be easier to defend as a legitimate protection rather than a disguised restraint. Template language that is vague, sweeping, or punitive tends to look like a restraint in functional clothing. ²
The most consequential feature of Michigan HB 4040 is that it reframes the noncompete issue as a relationship-to-business problem rather than an employment-status problem. When “worker” is described to include employees, independent contractors, interns, externs, volunteers, apprentices, and sole proprietors who provide services to a business, the question for template owners is no longer “which employees should sign a noncompete?” but “which of our templates impose post-relationship restraints on anyone who provides services?”² That difference sounds subtle, but it changes how you audit, how you govern templates, and how you train teams that generate agreements outside HR.
If your template set still assumes that contractors are a loophole, that interns are too temporary to matter, or that vendor documents live outside restrictive covenant risk, HB 4040 is the kind of bill that makes those assumptions expensive. The way to respond is not to hide restraints under new labels; it is to align your templates with legitimate protections that do not prohibit, penalize, or function to prevent future work.² In a legal environment that is increasingly skeptical of broad restraints, the strongest template strategy is the one that protects what is truly protectable while letting people work.
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Footnotes:
- Michigan Legislature, House Bill 4040 (2025–2026 Session), bill listing/summary and history information identifying the bill’s subject matter and that it amends Section 4a of 1984 PA 274 (MCL 445.774a). https://www.legislature.mi.gov/Bills/Bill?ObjectName=2025-HB-4040
- LegiScan, Michigan HB 4040 (2025–2026), “Introduced” bill text and summary describing the bill’s worker-focused approach, including the described definition of “worker” and the described prohibition framework for noncompete agreements. https://www.billtrack50.com/billdetail/1811633
- Michigan Compiled Laws § 445.774a (Michigan Antitrust Reform Act, Section 4a), text describing Michigan’s current statutory authorization for employer-employee noncompete agreements subject to reasonableness limits and judicial modification. https://lawreview.uchicago.edu/sites/default/files/BarnettSichelman_CaseForNoncompetes_87UCLR953.pdf
- U.S. Department of Labor, Wage and Hour Division, Fact Sheet #71: “Internship Programs Under The Fair Labor Standards Act,” explaining the “primary beneficiary test” used by courts to evaluate intern status under the FLSA. https://www.dol.gov/agencies/whd/fact-sheets/71-flsa-internships
- FastDemocracy, Michigan HB 4040 (2025–2026) bill summary describing the bill’s general approach to restricting noncompete agreements with workers and outlining the high-level structure of the proposal. https://fastdemocracy.com/bill-search/mi/2025-2026/bills/MIB00025987/