A New Day for Non-Competes in Wisconsin

14 July 2009 Publication
Authors: Daniel A. Kaplan David M. Lucey

Legal News Alert: Labor & Employment

The Wisconsin Supreme Court today issued a landmark decision changing the legal landscape in Wisconsin for covenants not to compete after employment. Covenants not to compete have long been disfavored in Wisconsin. Enforceable agreements are difficult to draft: Litigants have taken to searching agreements with a fine-toothed comb to find any hint of over-breadth, then arguing that the unreasonableness of one restriction rendered all restrictions unenforceable. This “void one, void them all” approach was fostered by a 2001 decision in which the court of appeals held that provisions are “intertwined and indivisible” if they govern similar activity — which almost all restrictive covenants do. Today, however, the Wisconsin Supreme Court overruled that decision, explaining that separate restrictions in the same agreement are “intertwined and indivisible” only if one provision cannot be read or interpreted without reference to the other. See Star Direct, Inc. v. Dal Pra, 2009 WI 76. If an otherwise enforceable covenant can stand on its own, it can be enforced even if another covenant in the same agreement is unenforceable.

The Star Direct decision opens the courthouse door to employers looking to enforce their non-compete agreements. An employer who might have been hesitant yesterday to seek enforcement of a valid non-solicitation provision can now do so even if the non-solicitation section is in the same agreement as an unreasonably over-broad non-disclosure or non-competition covenant — as long as the non-solicitation provision can stand alone, without reference to the other, unenforceable provisions.

The Wisconsin Supreme Court’s decision in Star Direct also made it easier to enforce covenants not to compete after employment by holding that:

  1. Although courts must interpret covenants not to compete in favor of the employee, that does not mean that they should make an effort to find the covenant unenforceable. Instead, covenants must be read as a whole and interpreted to avoid absurd results, to give the words plain meaning, and to give meaning to every provision.
  2. If an employer consistently requires new sales employees to sign non-compete agreements, the fact that a few pre-existing employees have not signed an agreement will not defeat the enforceability of the agreement against the more recent employees.
  3. Employers have a legitimate interest in prohibiting solicitation of former customers who were customers within the recent past, even though the employer does not have a current relationship with the customer.
  4. Employers may prohibit solicitation of customers with whom the employee did not have recent personal contact, so long as the employee had access to information about the customer’s specific needs and wants or the employer’s business that would give the employee a competitive advantage over ordinary competitors.

 

Each of these holdings will help Wisconsin employers enforce agreements not to compete after employment, so that an employee cannot “usurp for his own benefit the customers, relationships, and opportunities that [the employer] paid for and invested in.”

The Star Direct decision creates an opportunity for employers to review and perhaps strengthen their non-compete agreements — and serves as a good reminder that agreements of this nature need to be reviewed and updated regularly to keep abreast of legal changes.

 


Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Bernard J Bobber
Milwaukee, Wisconsin
414.297.5803
bbobber@foley.com

Sharon Mollman Elliott
Madison, Wisconsin
608.258.4786
smollmanelliott@foley.com

Daniel A. Kaplan
Madison, Wisconsin
608.258.4231
dkaplan@foley.com

David M. Lucey
Milwaukee, Wisconsin
414.297.5511
dlucey@foley.com

Michael C. Lueder
Milwaukee, Wisconsin
414.297.5643
mlueder@foley.com

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