Litigation Section Blog: Restrictive Covenants: Non-Solicitation Clause Enforced at Preliminary Injunction Stage:

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  • Litigation Section Blog
    December
    01
    2016

    Restrictive Covenants: Non-Solicitation Clause Enforced at Preliminary Injunction Stage

    Alexander T. Pendleton

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    "Employee beware"? A recent order issued by the Eastern District of Wisconsin enforces a restrictive covenant by granting a preliminary injunction to the employer of a departing employee, even though the employee claimed she never consented to the employer’s online restrictive covenant.

    Wisconsin law generally disfavors the enforcement of restrictive covenants, but with such decisions as Star Direct (Star Direct, Inc. d/b/a Star Distributing v. DAL PRA, 2009 WI 76, 319 Wis. 2d 74, 767 N.W. 2d 898), that rule has been eroding over the last few years.

    An example of this trend is Judge Joseph Stadtmueller’s recent order granting a preliminary injunction enforcing a nonsolicitation clause. BMO Harris Bank N.A. v. Lailer, No. 16-CV-545-JPS, 2016 WL 6155997 (E.D. Wis. Oct. 21, 2016).

    The decision is noteworthy: It is generally difficult to obtain a preliminary injunction in a restrictive covenant case. An injunction was granted in this case despite the defendant former-employee’s argument that she never was presented with, or gave her consent to, the restrictive covenant.

    A Modern Twist

    The modern twist to the case is that BMO Harris offered the job position to the employee via an emailed letter, which could only be accepted via an “online offer acceptance process.” According to the bank, the online process required the employee to click “Yes, I accept” at the bank’s portal to accept the offer. The offer made at the portal included certain “attachments” (presumably hyperlinks to online documents) which included the nonsolicitation provisions at issue in the case. There was no evidence offered that the employee ever clicked on, opened or otherwise reviewed the attachments, before she clicked “Yes, I accept.” Id. at *2-*3.

    Alexander T. (Sandie) Pendleton Alexander T. (Sandie) Pendleton, Minnesota 1987, practices with Pendleton Legal, S.C. in Milwaukee. He has extensive experience in business law, commercial dispute resolution, complex business litigation, shareholder disputes, and executive employment disputes.

    The court initially noted that a preliminary injunction “is an exercise of a very far-reaching power, never to be indulged in except in a case clearly demanding it.” Id. at *3. The court then proceeded to brush aside the employee’s argument that the nonsolicitation provision should not be enforced, because it was never “presented” to her, and therefore no “meeting of the minds” occurred. The court found the offer was presented to her twice, and that a “[f]ailure to read a contract, particularly in a commercial contract setting, is not an excuse that relieves a person from the obligations of the contract.” Id. at *4-*5.

    Reasonable and Enforceable Terms

    After the court found that it was highly likely that the bank would prevail on the “presentation/consent” issue, the court found that the terms of the restrictive covenant were reasonable and enforceable. The temporal aspect of the nonsolicitation clause was reasonable, in that it was retroactively limited (applying only to those customers serviced by the employee during the final 12 months of her employment) and prospectively limited (applying only for 12 months following her termination). Id. at *6. The lack of a geographic limitation on the customer nonsolicitation provision did not doom its enforcement, as the court concluded that “restraint expressed in terms of particular customers was likely just as, if not more, narrowly tailored as a general geographic restriction.” Id.

    The court also found for the bank on the “irreparable harm” issue. Key to the court’s decision was the evidence presented on the importance of “reputation” in the wealth counseling/investment industry, and that the defendant had been contacting clients, and making highly positive comments about her new employer (Baird). The court agreed with the bank that such communications/solicitations sent an “implied comparison” message that Baird was a superior financial services provider compared to BMO Harris. Id. at *8.

    Finally, the court concluded that money damages were inadequate to compensate BMO Harris for the breach, in part due to the particular difficulty involved in calculating money damages when reputational harm is at issue. Id. Based on those findings, the court concluded an injunction was clearly appropriate. Id.

    Conclusion: Employee Beware

    To be enforceable under Wisconsin law, restrictive covenants must be very carefully crafted, but when so crafted, employers can convince courts to enforce them, especially when (as in the above case) the employee is a highly-skilled, highly-compensated professional.

    This case also emphasizes that courts will enforce restrictive-covenant terms to which an employee indicated her or his consent, even if there is no evidence that the employee ever read the terms. “I never read it before I signed it” has traditionally been an ineffective defense in the paper-contract era, and now that we are in the e-contract era, it looks like courts are similarly giving short shrift to the modern cousin of that traditional argument. So “employee beware” (that’s caveat operatur, for those who like to toss around caveat emptor on occasion).

    This area of the law continues to evolve; because of this, lawyers may want to remind their clients of the wisdom/value of having a lawyer – preferably one knowledgeable in this area of the law – review:

    1. The text of their restrictive covenants (so as to best ensure that the terms of the covenants are clear, and consistent with current case law); and
    2. The process by which those covenants are presented (so as to best ensure that the employee’s consent to such covenants can be clearly established later, in court, where such issues become very important).




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