Back in August 2016, we told you a New Wisconsin Court of Appeals Case Should Have You Reviewing Your Noncompete Agreements Quicker than a Simone Biles Backflip. The reason for such an obscenely-long, yet at the time socially relevant headline? The Wisconsin Court of Appeals’ determination in Manitowoc Company, Inc. v. Lanning, that Wis. Stat. § 103.465, Wisconsin’s restrictive covenant law, applies to nonsolicitation agreements. If you didn’t listen to us then, it’s time to now. On Friday (January 19th), the Wisconsin Supreme Court confirmed that, in order to be valid, nonsolicitation agreements must meet the requirements of Wisconsin’s restrictive covenant law (check out the full decision here).
As a refresher, the nonsolicitation agreement at issue restricted Lanning’s ability to “(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” for a period of two years. When Lanning left Manitowoc Company for a competitor, Manitowoc Company alleged other employees followed him due to his solicitation in violation of this agreement. Of course, litigation ensued (and, now, two blog posts followed).
Confirming the Court of Appeals, the Wisconsin Supreme Court held that nonsolicitation agreements are subject to Wisconsin’s restrictive covenant law. This meant that Manitowoc Company’s (and your) nonsolicitation agreement had to meet all five requirements of Wis. Stat. § 103.465: 1) be reasonably necessary for the protection of the company; 2) have a reasonable time limit; 3) have a reasonable territorial limit; 4) not be harsh or oppressive to the employee; and 5) not be contrary to public policy.
Unfortunately for Manitowoc Company, not only did the Court disagree with its legal argument, it also found that its nonsolicitation agreement did not get past the first requirement, rendering it unenforceable. Specifically, it found that because Manitowoc Company’s nonsoliciation agreement was not limited territorially or to a certain class of employees, it “restricts Lanning’s conduct as to all employees of Manitowoc Company everywhere” – something it did not have a protectable interest in restricting, even if its intent was to enforce the restriction more narrowly in practice.
The takeaway: “A non-solicitation of employees provision may be enforceable under Wis. Stat. § 103.465 if it is reasonably necessary to protect the employer and reasonable as to time, geography, and type of conduct covered.” So, time to pull out your employment agreements and see if your nonsolicitation agreement stands up. Don’t have a nonsolicitation agreement, but are thinking about including one? Talk to an attorney. No need to find out the hard (and expensive) way that your agreement isn’t worth the paper it’s written on.