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Wisconsin Courts Struggle with Geography in Nonsolicitation Agreements

Wisconsin Lawyer
February 2002

Noncompete agreements expressly limit their reach to a particular geographic territory. In contrast, nonsolicitation agreements operationally limit their geographic scope by restricting competitive activities to certain customers of the employer. Wisconsin courts in Farm Credit Services of North Central Wisconsin v. Wysocki and Equity Enterprises Inc. v. Milosch have struggled with the geographic scope of nonsolicitation agreements, thus complicating the task of drafting enforceable restrictive covenant agreements.

Reasonable geographic scope has been a central requirement of valid contracts restricting the competitive activities of mployees and agents under both Wisconsin's common and statutory law. 1 Some contracts, referred to in this article as "noncompete agreements," satisfy this requirement by expressly limiting their reach to a particular geographic territory. Others, denominated as "nonsolicitation agreements," operationally limit their geographic scope by restricting competitive activities to certain customers of the employer/principal.2 Two recent Wisconsin court opinions - those in Farm Credit Services of North Central Wisconsin v. Wysocki 3 and Equity Enterprises Inc. v. Milosch 4 - have struggled with (indeed, have unnecessarily created) issues concerning the geographic scope of nonsolicitation agreements. Regrettably, these decisions have complicated the already daunting task of those who seek to draft enforceable restrictive covenant agreements in Wisconsin.

Wisconsin courts have been enthusiastic in their acceptance of nonsolicitation agreements, praising them as superior to noncompete agreements. 5 Noncompete restrictions may foreclose competitive activity with entities and individuals that are not customers with whom the employee has had contact and about whom the employee obtained no confidential information. Indeed, noncompete restrictions frequently foreclose competition with entities and individuals located in the proscribed territory that have no business relationship with the employer. Nonsolicitation agreements, in contrast, focus solely on a business's or employee's actual customers; they are necessarily more narrowly focused and less burdensome to the employee because they usually are coterminous with the business interest meriting protection.

Customers That Can Be Made "Off Limits"

Historically, Wisconsin courts' principal comments concerning nonsolicitation agreements have addressed the reasonableness of the universe of customers included within the restriction. In Chuckwagon Catering Inc. v. Raduege, 6 the nonsolicitation agreement prohibited a lessee of lunch routes from catering to customers on the leased lunch route for one year after termination of the lease. The court concluded that such a restrictive covenant was enforceable under Wis. Stat. section 103.465 as to both duration and territory. According to the court, the covenant reasonably protected the lessor's customer contacts by prohibiting the lunch route lessee from soliciting its former customers until the lessor's new route drivers could establish a relationship with those customers.

In Rollins Burdick Hunter of Wisconsin Inc. v. Hamilton, 7 the agreement at issue restricted an insurance agent from "solicit[ing], contact[ing] or otherwise do[ing] any competitive business with any ... customer or client" of the employer. 8 The Wisconsin Supreme Court rejected the court of appeals' conclusion that a restriction on competitive contact with customers with whom the employees had had no contact was per se unreasonable. "[A] flat rule invalidating all restrictive covenants whose scope exceeded a former employee's actual customer contact ... offends the notion that the validity of a restrictive covenant is to be established by examination of the particular circumstances which surround it." 9

Remanding the case for an evidentiary hearing, the Hamilton court provided guidance for determining which customers could properly be insulated from post-employment competition in Wisconsin:

"In many instances involving route salesmen or other nonmanagement employees, thescope of actual customer contact may serve as a guide to what scope of restriction is reasonable. But the customer contact notion takes on a new dimension where the person involved is a high-level management employee who is apt to have access to confidential business information. Thus, we do not believe the determination of whether a restraint of this type is reasonably necessary for the protection of an employer can be intelligently made without a consideration of the nature and character of such information, including the extent to which it is vital to the employer's ability to conduct its business, the extent to which the employee actually had access to such information, and the extent to which such information could be obtained through other sources." 10

The Wysocki and Equity Enterprises cases involved a different challenge to nonsolicitation agreements. In both cases, the courts entertained challenges to such restrictions based on their geographic scope, rather than the customers included within the restriction. Challenges to geographic scope had not previously been addressed in the context of nonsolicitation agreements, perhaps with good reason.

Wysocki and the Geography of Employee Activities

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