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The Winding Road of Wisconsin Non-Compete Law

Posted by Attorney David J. Espin in Non-Competes / Comments

If you're a Wisconsin business owner looking to protect your company's confidential information, customers, or personnel with a non-compete agreement, it can sometimes feel like the legal ground is constantly shifting beneath your feet. In a sense, it is. There may be no other area of law in which the guidelines on what is and is not permissible changes so often. A short review of recent Wisconsin court decisions demonstrates the ever-shifting rules for these increasingly ubiquitous agreements.

Wisconsin has codified its law on non-compete agreements in Wis. Stat. § 103.465, which states that an agreement between an employer and employee restricting competition is “lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal."

Prior to 2009, Wisconsin courts held that upon finding one overbroad provision in a non-compete, the whole agreement could be thrown out. This changed in Star Direct, Inc. v. Dal Pra, where the court set forth a new test for severability. The court held that if the unreasonable portion of the agreement were stricken, and the remaining portions could still be independently read and enforced, the unreasonable portion may be stricken while the remainder of the agreement could still be enforced. In practice, this usually entails drafting agreements so that each provision can be read as a separate and distinct covenant. This is easier said than done, and is usually a fact intensive exercise.

In Runzheimer Int'l Ltd. v. Friedlen, the issue before the court was whether there was sufficient consideration for a non-compete where an employer promised to not immediately fire its at-will employees if they signed the agreement. The court held that there was, with the caveat that the threat to terminate the employees' positions must be “real and provable." There is also a lingering question of how long an employee must remain employed for the consideration to be valid. While an hour probably wouldn't cut it and a year or more likely would, anything in between is still a murky area.

In Kohl's Dept. v. Janet Schalk, the company's chief information officer decided to end her employment with Kohl's and accept a position with a competitor. Kohl's requested an injunction seeking to impose the one year waiting period that was set forth in the employee's non-compete before she could work for the competition, citing her knowledge of Kohl's strategic plans and other confidential information. The court denied Kohl's request for an injunction, finding that although in a vacuum the agreement was likely enforceable, other executives at the company that were higher up the food chain and presumably had the same or greater access to similar types of confidential information were not subject to these restrictions. Thus, Kohl's rationale for the necessity of the restriction was not consistent with other executives' agreements, and, at least at the injunction stage, the agreement was unenforceable.

Finally, in Manitowac Co. v. Lanning, the court of appeals analyzed an agreement that prohibited an employee from being able to “solicit, induce, or encourage any employee(s) to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc."The court first held that even though Manitowac may have narrowly applied the provision, a provision that is narrowly applied yet still drafted in an overly broad fashion is nonetheless unenforceable. The court also held that the provision was overbroad because it restricted any employee from being solicited, and was not limited to employees in Lanning's division, or even employees that he had worked with. It even prevented Lanning from encouraging employees to retire or take an offer from a non-competitor. In short, the court found that the covenant restrained an “incredible" amount of activity. The case is currently pending before the Wisconsin Supreme Court, which granted certiorari.

While drafting a non-compete agreement that is sure to pass judicial muster may seem like an impossible task, sitting down with a qualified attorney and going over the specifics of your company's situation is probably your best bet. Although the legal ground will undoubtedly continue to shift, an agreement narrowly tailored to protect your organization's unique interests will give you the best chance at drafting an agreement that will hold up in court.

Attorney David J. Espin

Dave focuses his practice on business law, with an emphasis on business formation, corporate transactions, business bankruptcy, and work-outs. Dave has acted as general counsel for businesses of all sizes, and understands the various legal and practical issues that companies face every day.

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