By: Nicholas J. Linz, Attorney at Hager, Dewick & Zuengler, S.C
Through their written decisions, the Courts continually interpret and refine the laws of this State. This is especially true in the context of employment law, particularly those laws which relate to restrictive covenants. As the name suggests, restrictive covenants operate to restrain an employee’s actions both during and after employment. They are commonly known as non-compete, non-solicitation, or confidentiality agreements. The enforceability of these types of restrictive covenants is controlled by Wis. Stat. § 103.465, which states that any agreement between an employer and employee which imposes “an unreasonable restraint on trade is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.”
Exactly what does and does not constitute an “unreasonable restraint” within the meaning of the Statute is the subject of considerable debate. Periodically, the Courts will decide a case which puts an end to the debate as to a certain issue and clarifies how the law will be applied going forward. Last year, Runzheimer International v. Friedlen, et al., determined that continued at-will employment will be considered sufficient consideration to support a restrictive covenant agreement.
A recent Appellate decision, Manitowoc Company, Inc. v. Lanning, may have a similar wide-reaching effect upon the enforceability of restrictive covenants. Mr. John Lanning was formerly employed by the Manitowoc Company, Inc (“Manitowoc”). During his employment, Mr. Lanning executed a restrictive covenant agreement containing a non-solicitation clause which prohibited Mr. Lanning from “solicit[ing], induc[ing] or encourage[ing] any employee(s) to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc.” The language contained in this clause is similar to that seen in many other non-solicitation agreements.
Mr. Lanning voluntarily terminated his employment with Manitowoc and went to work for a direct competitor of Manitowoc. Shortly thereafter, he engaged in an effort, on behalf of his new employer, to solicit Manitowoc employees. Both parties agree, more or less, that Mr. Lanning’s actions violated the non-solicitation clause contained in his agreement. Mr. Lanning, however, asserts that the clause is unenforceable.
Manitowoc filed suit against Mr. Lanning in the Circuit Court for Manitowoc County. The Circuit Court granted summary judgment in favor of Manitowoc and awarded it damages which included over $1,000,000 in attorney fees. Mr. Lanning filed an appeal and the Appellate Court reversed the Circuit Court’s decision on the grounds that the non-solicitation clause, as drafted, was overbroad and unenforceable.
Manitowoc argued that Wis. Stat. § 103.465 does not apply, but even if it did, the non-solicitation clause is enforceable as it is necessary to protect a legitimate business interest in preventing former employees, such as Mr. Lanning, from using the relationships and specialized knowledge gained while working for Manitowoc to “systematically poach” its employees for the benefit of a competitor – which is exactly what Mr. Lanning did.
The Appellate Court’s decision is based upon the belief that Manitowoc’s non-solicitation clause reaches beyond the scope of the company’s protectable interest. It reasoned that the non-solicitation clause, as drafted, could operate to prevent Mr. Lanning from serving as a reference to a Manitowoc employee who applies for a new job, or “encouraging a former colleague and friend to retire to spend more time with his family”. Clearly, the driving force behind the non-solicitation clause was not to prevent these types of likely harmless scenarios.
Notwithstanding Manitowoc’s intent, the Appellate Court found the clause to be overbroad. “In short, Manitowoc has drafted a provision that requires it to prove that it has a protectable interest in preventing Lanning form encouraging any employee to leave Manitowoc for any reason, or to take any job with any competitor, supplier, or customer. […] Although Manitowoc articulates legitimate, even protectable, concerns, the provision it drafted is far too sweeping to withstand the close scrutiny we give such restrictive covenants.” Wisconsin law does not grant the courts the power to revise or alter an overbroad provision to make it enforceable. If one part is unenforceable, the entire clause, and any other clause which it affects, is deemed unenforceable.
It is important to note that the decision of the Appellate Court has not yet been published in the official reports, although publication is recommended by the Court, and that the decision is subject to appeal and potential reversal by the Supreme Court for the State of Wisconsin. Nonetheless, employers would be wise to re-examine the language of their non-solicitation agreements and seek the advice of an attorney regarding whether the agreement should be revised in light of this recent decision.