Michigan employers and their counsel are watching House Bill 4040 because it would represent a major break from the state’s traditional approach to restrictive covenants. Under current Michigan law, employers may still use post-employment noncompetes if they protect a reasonable competitive business interest and are reasonable in duration, geography, and scope of activity. HB 4040, by contrast, would largely prohibit businesses from entering into, obtaining, enforcing, or even representing the existence of a noncompete with a worker, while preserving only a narrow set of exceptions and expressly carving out certain confidentiality and limited solicitation restraints. As of April 2, 2026, however, the bill appears to remain an introduced bill rather than enacted law, which means the practical question for Michigan businesses has two parts: what remains enforceable today, and what still appears likely to work if HB 4040 becomes law in something close to its introduced form. ¹²
That distinction matters because many discussions of the bill jump too quickly from proposal to conclusion. Michigan has not traditionally been a state that treats all restrictive covenants with blanket hostility. Instead, the statute now codified at MCL 445.774a expressly authorizes agreements that protect an employer’s reasonable competitive business interests and that are reasonable as to duration, geographic area, and line of business, and it also permits courts to narrow an overbroad agreement and enforce it as limited. Michigan case law has likewise developed around the idea that a restraint must protect against unfair competitive advantage, not merely suppress ordinary competition or prevent a departing worker from using general knowledge and skill. ²⁵
HB 4040 would sharply narrow that framework. In its introduced text, the bill would bar a business from entering into, obtaining, enforcing, or claiming the benefit of a noncompete agreement with a worker. It defines “worker” broadly enough to include not just employees, but also independent contractors, externs, interns, volunteers, and apprentices. It also applies retroactively to noncompete agreements entered into before, on, or after the effective date. The bill does preserve a sale-of-business style exception, but only where the worker is an owner selling the business or ownership interest, or is responsible for the sale of substantially all operating assets, and only where the restraint is limited to reasonable competitive interests, reasonable duration, the relevant market, and the same type of trade or commerce. In other words, the bill would leave little room for the conventional employment noncompete that many Michigan businesses still use today. ¹
The more interesting question, and the one that will matter most to employers, is what protection tools would remain outside the blast radius. On that score, the bill itself gives away a great deal. It expressly states that it does not limit the enforceability of an agreement prohibiting a worker from disclosing confidential information or trade secrets. It also states that it does not limit the enforceability of an agreement prohibiting a worker from soliciting work from a business, but only if the worker provides work for the business, earns annual remuneration above 200 percent of the last published federal poverty line for a family of three, and the agreement expires no later than one year after the worker last provides work for the business. Those carveouts are narrow, but they are real. They suggest that the safest path forward in a post-HB 4040 environment would not be to relabel old noncompetes, but to build protection around confidentiality, trade secrets, carefully drawn business-solicitation restrictions, and employment structures that do not operate as post-employment bans. ¹
Non-solicitation clauses therefore remain in the conversation, but only if one is precise about what kind of nonsolicitation clause is being discussed. Under current Michigan law, nonsolicits have been treated as legitimate restraints when they protect real business interests without overreaching. The Michigan Court of Appeals in Total Quality, Inc. v. Fewless upheld a nonsolicitation clause in a dispute involving customer and business-relationship interference, and the court treated the clause as aimed at preventing the active disruption of the employer’s relationships rather than eliminating competition altogether. Later, in General Medicine, P.C. v. Ampadu, the Court of Appeals made the point even more directly, explaining that although MCL 445.774a arose from common-law noncompete doctrine, the statute’s reference to agreements protecting an employer’s reasonable competitive business interests is broad enough to include nonsolicitation agreements. The court also repeated that employers have legitimate business interests in restricting former employees from soliciting customers, employees, and business relationships, so long as the restraint remains reasonable. ⁴⁵
That does not mean every clause labeled “nonsolicitation” will survive under HB 4040. The bill’s definition of “noncompete agreement” is functional, not formal. It covers agreements that prohibit a worker from penalizing the worker for, or function to prevent the worker from seeking or accepting work with a different business or operating a business after the work relationship ends. That language is important because it means a court would likely look past labels and ask how the clause actually operates. A broad customer nonsolicit, employee nonsolicit, non-service clause, no-hire clause, or no-dealing clause that effectively prevents the worker from taking a job in the market could be argued to function as a noncompete even if the contract never uses that word. Under the bill’s text, the safer nonsolicit is not the broad, catch-all restraint that keeps a departing worker from working with anyone important to the former employer. The safer nonsolicit is the narrow clause the bill itself seems willing to tolerate one focused on soliciting work from the business, limited to well-compensated workers, and capped at one year. ¹
For that reason, employers who assume they can save their old noncompete program merely by swapping the title page are likely making a mistake. Michigan courts have long looked at substance over terminology when deciding whether a restraint protects a legitimate business interest or simply restrains competition. The existing cases emphasize that the employer must show an unfair competitive advantage, such as misuse of confidential information, customer goodwill created at the employer’s expense, or relationships developed through the employer’s platform, rather than a mere desire to keep talent from leaving. If HB 4040 becomes law, that same substance-first reasoning would likely become even more important, because the bill itself instructs courts and litigants to focus on whether a restriction “functions to prevent” post-employment work. ¹³⁴⁵
Confidentiality agreements, by contrast, stand on much firmer ground. The bill expressly says it does not limit the enforceability of agreements prohibiting disclosure of confidential information or trade secrets. That carveout is not surprising, because Michigan law has long recognized that protecting genuinely confidential information is different from blocking ordinary competition. In Follmer, Rudzewicz & Co. v. Kosco, the Michigan Supreme Court explained that an employee’s use of confidential client information can create an unfair advantage and that an employer may protect itself against the unauthorized use of such information, but only to the extent reasonably necessary. The court also drew the critical line that remains central today: the employee is not prohibited from using general knowledge, skill, or information readily ascertainable in the trade, but the employer may protect confidential information that belongs to it. Later Michigan decisions have repeated that distinction in modern restrictive-covenant disputes. ³⁵
That distinction means confidentiality language will matter more, not less, if broad noncompetes are curtailed. But it also means employers will need to draft with discipline. A strong confidentiality clause should define protected information in a way that is concrete enough to be credible and broad enough to cover what actually matters, such as nonpublic customer preferences, pricing strategy, pipeline data, sales history, internal forecasts, margin information, sourcing methods, product roadmaps, security procedures, and nonpublic compensation or recruiting plans where appropriate. At the same time, the agreement should clearly exclude information that is publicly available, independently developed without use of the company’s information, or generally known in the industry. A clause that claims everything is confidential often protects less in practice than a clause that carefully identifies categories of information and ties them to legitimate business use. That lesson is already embedded in Michigan law, and HB 4040 would make it even more valuable because confidentiality may become the most durable post-employment protection tool of all. ¹³⁵
There is another reason confidentiality agreements will likely become the center of gravity. Customer protection in many industries is really information protection in disguise. A departing salesperson often has value not just because of personal charm or hard work, but because the employer gave that individual access to nonpublic data about buying cycles, pricing thresholds, incumbent dissatisfaction, product mix, service failures, renewal timing, and internal contacts. Michigan law has long recognized that customer-related confidential information can be protectable, and Follmer speaks directly to the unfairness of letting a departing employee use client-specific information acquired through the employer to obtain patronage after departure. General Medicine similarly ties confidential information and customer relationships to the employer’s legitimate competitive interests. In practice, then, the path to protecting customer relationships after HB 4040 is not likely to be a disguised market-wide noncompete; it is far more likely to be a combination of trade secret protection, confidentiality language, targeted notice provisions, and a narrow solicitation restriction that fits within the statute’s express safe harbor or at least does not function as a work ban. ¹³⁵
Garden leave is more complicated, but it may also be one of the more promising options if structured properly. Michigan’s current statute does not specifically regulate garden leave by name, and HB 4040 does not use that term either. The significance of the bill’s definition of a noncompete, however, is that it focuses on restrictions that operate “after the worker’s work with the business ends.” That phrase suggests a key drafting insight. If a worker remains employed during a notice period, remains on payroll, and remains bound by duties of loyalty and confidentiality while not actively working or while transitioning out, a true garden-leave arrangement may fall outside the bill’s definition because the work relationship has not yet ended. Put differently, a paid notice period during ongoing employment is not the same thing as a post-employment restraint. ¹
Still, calling something “garden leave” will not automatically make it safe. A court would likely look at how the arrangement functions in real life. If the employer terminates the worker immediately, stops meaningful compensation, and then purports to prevent the worker from starting elsewhere for months, that looks much more like a post-employment noncompete with a different label. If, by contrast, the worker remains employed for a short and definite notice period, continues receiving salary and benefits, remains subject to ordinary duties associated with employment, and the period serves a legitimate business purpose such as transition, customer handoff, systems separation, or preservation of confidential information during departure, the structure is easier to defend as employment status rather than post-employment restraint. The bill’s text does not guarantee that result, but it strongly suggests it. ¹
Employers should therefore think of garden leave less as a substitute for a sweeping noncompete and more as a transition mechanism. Its strongest use case is not the mid-level employee whose departure creates ordinary competition. It is the executive, rainmaker, or strategically placed employee who has current access to sensitive information, live deal pipelines, pricing authority, or influence over key accounts, and whose departure creates a temporary but genuine risk of disruption. A short-paid notice period can create breathing room for reassignment of customer relationships, revocation of system access, reminder of confidentiality obligations, and stabilization of the team. That is a very different legal and equitable posture from trying to keep someone out of the market for a year or two without an ongoing employment relationship. ¹³
Customer-protection clauses will also survive, but only in narrower and more carefully justified forms. Michigan courts have repeatedly recognized that customer goodwill developed through the employer’s investment can qualify as a legitimate competitive interest. In St. Clair Medical and later cases discussed by the Court of Appeals, the idea is that a departing worker should not be allowed to exploit relationships or goodwill created by the employer’s platform, advertising, or investment in a way that produces unfair competition. General Medicine reinforces this logic by tying patient contacts, employer goodwill, and the employer’s expenditures to the reasonableness analysis. That line of reasoning remains important because it supports targeted restraints aimed at protecting existing customer relationships rather than suppressing all competition in a field. ⁵
Even so, customer-protection language after HB 4040 will need to be drafted with much greater precision. Clauses that prohibit a former worker from accepting business from any former customer, from working on any account that overlaps with the former employer, or from servicing any customer in a broad industry segment may be vulnerable to the argument that they functionally prevent the worker from taking a new job. The better approach is to tie the restriction to a narrower set of relationships, such as customers or prospective customers with whom the worker had material contact, about whom the worker received confidential information, or for whom the worker had responsibility during a defined recent period. Duration should be short. Geographic language should, where applicable, reflect real market limits rather than generic state-wide or nationwide coverage. And the restriction should focus on active solicitation or misuse of confidential information rather than passive acceptance of business in circumstances where the worker is not leveraging protected information. ¹⁴⁵
Another practical consequence of HB 4040 is that remedial language matters. The bill would make unlawful not only the enforcement of a prohibited noncompete but also attempts to obtain one and even representations that one applies. It would authorize an aggrieved worker to recover actual litigation costs, including reasonable attorney fees, and all income lost because of actual or threatened enforcement. That remedial scheme is a warning to employers not to bluff, overstate, or send aggressive letters based on doubtful clauses. In a more restrictive statutory environment, the quality of internal covenant review becomes as important as the quality of the covenant itself. An employer that casually threatens enforcement of a clause later deemed to function as a noncompete could create liability where a more careful approach would have avoided it. ¹
The practical drafting lesson, then, is that Michigan employers should move away from the one-document-fits-all restrictive covenant packet. The future-proof agreement is modular. It contains a carefully drafted confidentiality and trade secrets section grounded in real categories of nonpublic information. It uses invention-assignment and return-of-property language where relevant. It may include a narrow solicitation clause for workers whose compensation and role fit the bill’s express carveout. It can use a short, paid garden-leave or notice provision for selected employees where ongoing employment status is genuine. And it treats customer protection as a function of relationship-specific unfair advantage and confidential information, not as a backdoor prohibition on taking a job with a competitor. ¹³⁴⁵
There is also a litigation lesson hidden in Michigan cases. Courts are more receptive when the employer can explain exactly what competitive interest is being protected and why the restraint is not broader than necessary. The record matters. Employers that consistently identify who has access to sensitive information, which accounts are strategically important, how goodwill was built, and why a limited restraint is necessary are far better positioned than employers that rely on boilerplate recitals. Michigan decisions repeatedly separate general know-how, which workers may use freely, from confidential or employer-generated advantages, which may justify protection. That distinction should be shaped not only contract drafting but also by onboarding, training, account assignment, CRM controls, exit interviews, and offboarding certifications. ²³⁵
For businesses operating in Michigan right now, the bottom line is straightforward. Current law still allows reasonable noncompetes and nonsolicits under MCL 445.774a, and Michigan courts continue to enforce restrictive covenants that protect legitimate interests rather than simply stifle competition. But HB 4040 would fundamentally alter that environment by largely banning worker noncompetes while expressly preserving confidentiality protections and only a narrow category of solicitation restrictions. If that bill becomes law, the clauses most likely to remain workable are those that target misuse of confidential information, protect trade secrets, regulate narrowly defined solicitation by sufficiently compensated workers for a limited period, and use genuine paid garden leave during ongoing employment rather than disguised post-employment exclusion. ¹²³⁴⁵
So, the answer to the question, “After HB 4040, what still works in Michigan?” is not “nothing,” and it is not “whatever used to work, just under a different label.” What still works is narrower, more disciplined, and more defensible. Confidentiality still works. Trade secret protection still works. Some carefully drawn nonsolicits may still work. Paid garden leave may still work when it is truly part of an ongoing employment relationship. Customer-protection language may still work when it targets unfair competitive advantage instead of functioning as a labor-market ban. The employers that adapt successfully will be the ones that stop treating restrictive covenants as generic forms and start treating them as tailored risk-allocation tools tied to specific, provable business interests. ¹³⁴⁵
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Sources:
- House Bill 4040, 103rd Michigan Legislature, introduced January 30, 2025; Michigan Legislature bill history and introduced text; LegiScan bill text and status. https://legiscan.com/MI/bill/HB4040/2025
- Michigan Compiled Laws 445.774a, Michigan Antitrust Reform Act, section governing employer covenants protecting reasonable competitive business interests. https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-445-774A
- Follmer, Rudzewicz & Co., P.C. v. Kosco, 420 Mich 394, 362 NW2d 676 (1985). https://law.justia.com/cases/michigan/supreme-court/1985/68111-4.html
- Total Quality, Inc. v. Fewless, 332 Mich App 681, 958 NW2d 294 (2020). https://case-law.vlex.com/vid/total-quality-inc-v-892668148
- General Medicine, P.C. v. Ampadu, unpublished per curiam opinion of the Michigan Court of Appeals, issued November 9, 2023, Docket No. 361260. https://www.courts.michigan.gov/siteassets/case-documents/uploads/OPINIONS/FINAL/COA/20231109_C361260_52_361260.OPN.PDF