Agreements not to compete with an employer after the employment relationship ends seem to be more common each year. At a recent presentation, when I asked the crowd who had a non-compete agreement or knew of other employees at their workplace who had one, almost every audience member’s hand was raised high. A recent legal development in Wisconsin may signal a significant change in non-compete agreement enforcement is in the works.
In Wisconsin, non-compete agreements are subject to a state statute, Wis. Stat. § 103.465. One additional requirement of a non-compete agreement is that it must be supported by consideration. In other words, each side has to “get” something for its promise. In the world of non-compete litigation, experienced attorneys will usually be quick to examine whether an employee received appropriate consideration when he or she agreed to the non-compete terms. As the law stands, Wisconsin courts will accept the offer of employment as sufficient consideration but continued employment alone is not enough. That is, an employer presenting a non-compete agreement for signature to an employee after the employment relationship begins will have to offer something more. Usually, the approach offering the most legal certainty will involve a financial incentive.
Last month, the Wisconsin Court of Appeals asked the Wisconsin Supreme Court to address this issue in Runzheimer International, Ltd. v. Friedlen, et al. Specifically, the court of appeals certified the following question: “Is consideration in addition to continued employment required to support a covenant not to compete entered into by an existing at-will employee?” The former employee at issue signed a non-compete agreement after twenty years of employment. Around two years later, the employer terminated his employment and he went to work for a competitor. Coincidentally, a state appellate court for our neighbors to the south in Illinois recently decided that continued employment must last for two years before it is sufficient consideration to support a non-compete agreement.
Non-compete agreements need to be updated as changes in the law occur to serve any use. What may seem to be a slight change in the law may render what was a solid agreement, completely unenforceable. Wisconsin also has a solid history of significant changes occurring in this area of the law every few years. The small price to evaluate a non-compete agreement to determine whether it is valid under current law can save a mountain in litigation costs down the road.