Wisconsin Employers: Have You Had Your Non-Compete Agreements Reviewed Recently? Recent Court Case Invalidates Non-Solicitation Under WI law!
By Ruder Ware Alumni
January 30, 2018
What WI employers need to know: Wisconsin employers must immediately revise their non-compete agreements so as to comply with this recent decision. Contact Mary Ellen Schill or Sara Ackermann of the Ruder Ware team to assist you!!
The Wisconsin Supreme Court has ruled that an employee non-solicitation agreement is unenforceable if it unreasonably restricts the employee’s ability to “freely compete for the best talent in the labor pool”. This opinion (The Manitowoc Company v. Lanning, 2018 WI 6) is a significant decision that may affect the enforceability of existing non-solicitation agreements that are not tailored to an employee’s particular situation.
It is common for employers to require employees to enter into non-solicitation agreements as part of or companion to non-compete agreements. Non-solicitation agreements prohibit employees who leave the employer from encouraging the employer’s other employees to switch jobs or to otherwise leave the employer. These agreements typically arise in two situations: (1) when the employee is hired, and the non-compete and non-solicitation agreements form part of the consideration given in exchange for being hired, and (2) when employment is terminated, and the non-compete and non-solicitation agreements form part of the consideration given in exchange for some kind of termination benefit.
In the Manitowoc Company case, the non-solicitation agreement at issue prohibited the employee, Lanning, from soliciting, inducing, or encouraging any Manitowoc Company employee to terminate his or her employment or to accept employment with a competitor, supplier, or customer of Manitowoc for two years following termination of employment. The Supreme Court ruled that this provision was overbroad in violation of Wisconsin Statute section 103.465, because it was not tailored to be “reasonably necessary for the protection of the employer”.
The Court stated that by prohibiting solicitation of any Manitowoc Company employee anywhere, the non-solicitation agreement unreasonably restricted (1) Lanning’s ability to compete for workers and (2) the ability of Manitowoc employees to exercise their right to seek the job of their choice. Because Wisconsin law provides that any invalid provision of an agreement which restrains an employee’s ability to compete causes the entire agreement to be invalid, the Court declared Lanning’s entire non-solicitation agreement to be unenforceable.
This opinion confirms that non-solicitation agreements are subject to the same guidelines as non-compete agreements. Many employers are familiar with the need to tailor non-compete agreements to time and geographic limits that do not unreasonably restrict an employee’s ability to gain other employment. These same rules now apply to non-solicitation agreements.
Employers can still enter non-solicitation agreements, but they must be reasonably calculated to only apply to what is actually necessary to protect the employer. Based on what the Court stated in its opinion, this could mean that the application of non-solicitation agreements should be limited to “key” employees, such as top level employees, those with trade secrets, or those with special skills or knowledge that would be difficult to replace, or employees with whom the former employee worked.
Employers should review their existing non-solicitation agreements without delay. If any such agreements appear to be overly restrictive, consideration should be given to drafting new agreements that are carefully tailored to the particular employee’s situation. Employers are reminded that current employees can be asked to sign new non-compete and non-solicitation agreements. This is because Wisconsin courts have confirmed that requiring employees to sign such agreements, if they are properly drafted, is a sufficient condition for continued employment. It is recommended that legal counsel be consulted to determine the best course of action.
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