Almost like clockwork, every couple of years there is a new Wisconsin case that requires employers to take a new look at their restrictive covenant agreements to make sure they are enforceable. Last week proved this adage true to form as the Wisconsin Court of Appeals took on a new issue with respect to application of Wis. Stat. § 103.465, Wisconsin’s restrictive covenant law, to nonsolicitation agreements. Along the way, however, the court drove home another point that should have every employer reviewing their noncompete agreements once again.
In Manitowoc Company, Inc. v. Lanning, the court examined the nonsolicitation agreement Manitowoc Company had with its former employee, John Lanning. Those terms stated:
I agree that during my Employment by Manitowoc and for a period of two years from the date my Employment by Manitowoc ends … I will not (either directly or indirectly) 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.
When Lanning left Manitowoc Company for a competitor, Manitowoc Company alleged other employees followed him due to his solicitation in violation of the agreement. Of course, litigation ensued (and a blog post followed).
The unique issue the Court of Appeals took on was whether Wis. Stat. § 103.465, and the restrictive covenant caselaw generally, applies to agreements not to solicit former coworkers. Most litigation in this arena addresses related but distinct noncompete terms. No Wisconsin court had directly answered this nonsolicitation question. The court concluded that nonsolicitation terms are restraints of trade that are indeed subject to § 103.465.
Perhaps the more significant contribution Lanning makes to parties addressing restrictive covenant agreements is the discussion it provides on how closely such agreements must be scrutinized by courts. Manitowoc Company attempted to argue that courts should look at how such agreements actually are enforced to determine whether they are overbroad, rather than how they could possibly be enforced. The Court of Appeals provided a thorough summary of restrictive covenant law in Wisconsin to strongly reject this argument. The Court of Appeals explained:
An overbroad provision is not reasonable and enforceable simply because the employer enforces it in a reasonable manner. … When determining whether a restrictive covenant is overbroad, our cases demonstrate that we look not at the particular facts or circumstances of a case, but to the plain language of the agreement itself. … Thus, if the text of the [nonsolicitation] provision restrains trade impermissibly, it is unenforceable even if the acts complained of in this action could have been proscribed by a more narrowly written and permissible restrictive covenant.
In light of this standard, the Court of Appeals proceeded to present a series of ways in which Manitowoc Company’s nonsolicitation terms would prohibit Lanning from acting for which the business had no interest in stopping him. For example, the Court of Appeals explained the nonsolicitation terms would prevent Lanning from encouraging a friend at Manitowoc Company to retire.
This case provides a strong incentive for employers to re-examine their restrictive covenants today. Lanning obviously provides a good lesson with language that many employers may have in place right now. But more than that, all restrictive covenant terms should be closely examined to make sure the restrictions are narrowly tailored to the potential unfair competition that is at issue for each specific employee. It can be a very expensive endeavor to think about how your restrictive covenant language could apply once it comes time to enforce the agreement during litigation, rather than before making the trip to the courthouse.