Employers often require employees to sign agreements which include restrictive covenants. “Restrictive covenants” include noncompete agreements, non-solicitation restrictions (prohibiting solicitation of customers and/or employees), and confidentiality and nondisclosure agreements. These agreements can be important to protect the employer from the employee working for a competitor, or disrupting customer relationships after the employer has invested in that employee through training and the disclosure of proprietary information. This article focuses on noncompetition and non-solicitation agreements signed by employees in the state of Wisconsin.
Wisconsin courts are generally hostile to noncompetition agreements. Wisconsin has a statute which allows a judge to void a noncompetition agreement that does not contain the elements described in the statute. In some states, including Minnesota, courts are allowed to modify a restrictive covenant so that it can be enforced. In Wisconsin, if the restrictive covenant is deemed to violate this statute, it is unenforceable in its entirety.
So what does a noncompetition or non-solicitation provision in the state of Wisconsin need to say to make it enforceable?
- The covenant must be necessary for the protection of the employer. The agreement should expressly state why and how the agreement is necessary to protect the employer. Simply restricting ordinary competition is not sufficient; the agreement should describe the special facts and circumstances which support the rationale for the restrictive covenant. For example, if the employee has contact with the employer’s customers, the protection of these customer contacts may justify a non-solicitation restriction.
- The time limit should be reasonable. Wisconsin courts have held that a reasonable time frame for a nonsolicitation or noncompetition agreement is determined by facts and circumstances of the specific case. Although there are no clear rules as to the definition of a “reasonable” period of time, Wisconsin courts have recognized that a two-year time limitation is reasonable.
- The geographic scope should be reasonable. The reasonableness of a geographic restriction is determined by the facts and circumstances of the particular situation. The restriction cannot encompass territory where the company does not do business. An agreement can list specific customers with whom the employee can have no contact or for which a new employer can have contact, or it can describe the territory in which the employee is subject to the limitation. It is not sufficient to simply says the employee cannot work anywhere in the marketplace. It should be noted that non-solicitation restrictions may be enforced by a court without a specified geographical territory if the facts and circumstances warrant. A provision which disrupts a customer relationship, regardless of where the customer is located, may be enforced if the relationships are critical to the employer enforcing the agreement.
- The restriction should not be unduly harsh to the employee. Courts are concerned as to whether a restrictive covenant prevents the employee from working anywhere and from using their skills anywhere. Courts consider a number of factors, such as the economic conditions, the employee’s age and education, and the impact of the restriction on the employee’s ability to use their skills. The noncompetition and non-solicitation agreement should not be so unreasonable the employee can’t find a job.
- The restrictive covenant should not violate public policy. For example, does the covenant contribute to the shortage of specialized services or education? Does the restriction result in a monopoly because the employer is the only company that provides the services or products in issue? The noncompetition and non-solicitation agreement should not impose a restraint of trade because it is so broad.
Lastly, when an employee is employed in Wisconsin an employer can require that the employee sign a non-compete as a condition for employment to continue. This is different from many other states, including Minnesota, which require the employer to provide consideration to a current employee for the non-compete to be valid and enforceable. In Wisconsin, an employee can be required to sign a noncompete any time after employment begins, without receiving additional pay or benefits for signing the noncompete.
Although Wisconsin has a statute that limits the circumstances under which a noncompetition or non-solicitation provision will be enforced, if drafted properly, these kinds of restrictions can be enforced.
About the Author
Phyllis Karasov advises businesses on labor and employment matters and has substantial experience drafting, interpreting and enforcing noncompetition agreements, confidentiality agreements, and separation agreements. Her clients come from a variety of sectors, including healthcare, construction, manufacturing, education and nonprofits. Phyllis also provides counsel in all areas of human resources, including hiring, handbooks, regulatory compliance, discrimination, sexual harassment, discipline and termination, Americans with Disabilities Act, OSHA rules and the Family and Medical Leave Act. Phyllis is licensed to practice in both Wisconsin and Minnesota. Phyllis is also a regular contributor to Larkin Hoffman’s Employment and Labor Law Blog.
Michael Salchert has been advising dentists in corporate, business, real estate and transactional matters for more than 35 years. As a member of both the Wisconsin and Minnesota Bar Associations, he primarily works with professionals on the sale or purchase of professional practices, providing general business advice including employment and other business contractual and real estate matters. Michael leverages his longtime business experience in counseling his clients on a wide range of business and legal issues.