Time to Review Your Non-Compete Agreements

It’s five o’clock Friday afternoon and your top sales person, Sally Jones, marches into your office to announce that she is resigning and, starting Monday, she is going to work for the competition. To add insult to injury, she informs you that she convinced two of your other three sales people to follow her—leaving your sales force nearly gutted and the competition stacked with successful sales people having intimate knowledge of your business and, worse yet, your customers.

In the midst of your anger and anxiety, you remember that Sally signed a restrictive covenant agreement when you hired her five years ago. That agreement proclaims that Sally won’t leave you to work for the competition, won’t steal your customers and won’t steal fellow employees. While you may not be able to force Sally to stay, you and your attorneys can certainly keep her from going to the competition with your other sales people in tow—right? Probably not.

Wisconsin’s laws have become notorious for making it very difficult for employers to enforce restrictive covenants (such as non-competes and non-solicitation covenants) against its former employees. Our statutes and case law require that any such covenants pass a rigid “reasonableness” test that examines the duration and geographic scope of the restrictions, the effect of enforcement on the employee, the necessity of the restrictions to protect the employer’s business interests and whether the restrictions offend one or more compelling public policies. If the Court feels that a restriction is “unreasonable” in any of these respects, the entire restriction is declared to be unenforceable. To make matters worse, if an agreement contains multiple restrictions on the employee (for example, both a non-compete and a customer non-solicitation provision) and one of those restrictions is determined to be unreasonable, all of the covenants can be rendered unenforceable—even if the others might be “reasonable” standing alone.

In keeping with tradition, the Wisconsin Supreme Court recently decided the case of Manitowoc Co. v. Lanning in which it proclaimed that a former employee’s agreement to not solicit fellow employees was unenforceable because it prohibited Mr. Lanning from stealing any of Manitowoc’s 13,000 employees no matter their position, office location, prior dealings with or influence by Mr. Lanning and regardless of Mr. Lanning’s reason for luring them away from Manitowoc’s employ. In other words, the Court felt that the employee non-solicitation covenant was not drafted narrowly enough to only protect Manitowoc’s reasonable interests in protecting its workforce from employee piracy.

In light of the Manitowoc decision, most employee non-solicits are likely of questionable enforceability. Further, depending on how carefully the restrictive covenant agreement was drafted, an unenforceable employee non-solicit could infect the other covenants in the agreement and render them unenforceable, as well - guilt by association. Any employer is, therefore, well advised to dust off its existing restrictive covenant agreements with its employees, and template agreements going forward for use with future employees, to see what changes may be necessary. Waiting to do so until after Sally tenders her resignation is too late.

For more information or for assistance with your existing or future restrictive covenant agreements, contact a member of the Business Team at the Law Firm of Conway, Olejniczak & Jerry, S.C.

Written By:
Attorney Robert M. Charles