Labor & Employment Blog: Wisconsin Court of Appeals Finds Non-solicitation of Employees Provision Unenforceable Under Restrictive Covenant Statute:

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  • Labor & Employment Blog
    October
    12
    2016

    Wisconsin Court of Appeals Finds Non-solicitation of Employees Provision Unenforceable Under Restrictive Covenant Statute

    Joseph E. Gumina, Ryan A. Onosko

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    The Wisconsin Court of Appeals recently ruled – for the first time – that Wis. Stat. section 103.465 on the enforceability of restrictive covenants in employment relationships applies to employee non-solicitation provisions. This recent development may make many employers’ current covenants unenforceable.

    InThe Manitowoc Company, Inc. v. Lanning, 2015AP1530 (Aug. 17, 2016), the Wisconsin Court of Appeals ruled – for the first time – that Wis. Stat. section 103.465, which governs the enforceability of restrictive covenants in employment relationships, applies to employee non-solicitation provisions.

    In 2008, John Lanning, an employee at The Manitowoc Co., entered into an agreement that prohibited him, for a period of two years after his employment ended, from either directly or indirectly soliciting, inducing, or encouraging “any employee to terminate their employment with Manitowoc” or to “accept employment with any competitor, supplier or customer of Manitowoc.”

    Joseph E. Gumina Joseph E. Gumina, William Mitchell 1990, leads O’Neil Cannon, Hollman, DeJong & Laing’s Employment Law Practice Group and has extensive experience representing management in a vast array of employment and labor matters.

    Ryan A. Onosko Ryan A. Onosko, Marquette 2016, is a member of O’Neil Cannon, Hollman, DeJong & Laing’s Corporate Practice Group and assists clients in matters relating to business law.

    The Manitowoc Co. claimed that, after leaving the company in 2010 to work for a direct competitor, Lanning communicated with at least nine employees in connection with possible employment opportunities at his new employer. The Manitowoc Co. claimed this was a violation of the employee non-solicitation provision and filed suit against Lanning.

    The circuit court granted summary judgment in The Manitowoc Co.’s favor, awarding damages and attorneys’ fees. Subsequently, Lanning appealed to the Wisconsin Court of Appeals, which ultimately reversed the lower court’s ruling.

    On appeal, The Manitowoc Co. argued that section 103.465 should not apply to employee non-solicitation provisions but, rather, only to covenants not to compete the court quickly dismissed that argument, stating that any covenant between an employer and employee that “seeks to restrain competition” or operates as a “trade restraint” clearly falls within the confines of section 103.465.

    The court noted that the employee non-solicitation provision limited how Lanning could compete with The Manitowoc Co. and “did not allow for the ordinary sort of competition attendant to a free market, which includes recruiting employees from competitors.” Therefore, the court determined that the employee non-solicitation provision had to comply with section 103.465.

    With the applicability of section 103.465 to employee non-solicitations decided, the court then embarked to determine whether the provision The Manitowoc Co. sought to enforce was reasonably necessary to protect the company’s legitimate business interests from unfair competition from a former employee. The Manitowoc Co. argued that it had a legitimate interest in preventing Lanning from “systematically poaching” its employees, and it believed the provision was narrowly tailored to protect it from such a threat.

    The court disagreed, however, determining that the actual terms of the agreement, as written, were far too broad and, therefore, unenforceable. As drafted, the non-solicitation provision prevented Lanning from solicitinganyemployee, whether entry level or a key employee, to leave The Manitowoc Co. foranyreason, whether to retire to spend more time with family or work for a competitor. Because the court found that the provision restricted “an incredible breadth of competitive and noncompetitive activity,” it concluded that the employee non-solicitation provision, as drafted, did not protect a legitimate business interest and, as such, the provision could not pass the strict scrutiny that section 103.465 required and, accordingly, found the covenant unenforceable.

    In light of this decision, employers should review their current agreements that contain employee non-solicitation agreements. Although employers have the right to require employees to enter into agreements with employee non-solicitation provisions, the provisions must be crafted narrowly and carefully – just like covenants not to compete – to meet the strict scrutiny analysis required by section 103.465.

    To be enforceable, employee non-solicitation provisions must focus on protectable interests, such as restricting former employees from soliciting current employees with whom the former employee had a direct business relationship with from ending their employment in order to engage in direct competitive activity adverse to the employer.

    An experienced management-side employment attorney can assist employers with drafting such provisions in order to meet the enforceability standards required by the Wisconsin restrictive covenant statute.





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