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New case significantly limits Wisconsin employee non-solicitation restrictions

August 29, 2016

New case significantly limits Wisconsin employee non-solicitation restrictions

August 29, 2016

Wisconsin employers who use restrictive covenant (non-compete) agreements with their employees will want to consider updating those agreements following a recent decision by the Wisconsin Court of Appeals.

Many non-compete agreements and employment agreements include language restricting an employee’s ability to recruit his or her former co-workers to work for another employer after the employee leaves the company.

These restrictions – commonly known as employee non-solicitation provisions – are less frequently enforced than similar restrictions on the solicitation of customers, but nonetheless remain an important tool for employers seeking to limit the risk of wholesale departures of a particular group or unit of their company. Many such provisions are drafted to prevent former employees from directly or indirectly soliciting any former co-worker to resign their employment and go work for another entity.

On August 17, 2016, the Wisconsin Court of Appeals ruled in Manitowoc Company, Inc. v. Lanning, that employee non-solicitation restrictions are invalid and unenforceable under Wisconsin’s notoriously strict restrictive covenant law statute if they are not “reasonably” drafted.

In that case, an engineer who worked for the company signed a restrictive covenant agreement that included a restriction on his direct or indirect solicitation, inducement or encouragement of any Manitowoc employee to terminate employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc. The engineer signed the agreement two years before he left the company to work for one of its competitors, SUNY America. After he began working for SUNY America, he sought to recruit Manitowoc Company employees to work with him for his new employer.

The court determined that Manitowoc Company’s employee non-solicitation provision was overbroad. As a result, the company could not enforce the restriction against its former engineer. In reaching its decision, the Court noted that Wisconsin law prohibits the enforcement of restrictive covenant provisions that, by their terms, extend beyond what is reasonable and necessary for the protection of an employer’s legitimate interest.

Manitowoc Company’s employee non-solicitation provision, the Court pointed out, was written broadly enough so that it could prevent former employees from serving as a job reference or even “encouraging a former colleague and friend to retire to spend more time with his family.” Thus, even though the specific employee in question was a “big fish” who was actually helping a Manitowoc competitor to poach Manitowoc employees, the provision extended beyond what was necessary for the protection of Manitowoc’s legitimate business interests and was therefore overbroad and unenforceable as a matter of law.

The Court of Appeals decision is the first major case to rule specifically on the enforceability of employee non-solicitation provisions in Wisconsin. While the case upholds the right of employers to enter into such agreements with their employees, the scope of any such restrictions must be carefully tailored so as not to restrict activities that do not pose a legitimate, competitive threat.

Employers will need to review their restrictive covenant and employment agreements to determine whether changes to those agreements are appropriate and, if so, how to implement changes in accordance with the court’s decision.

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