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Using non-solicitation agreements in Wisconsin

by | Sep 20, 2021 | Business Law

A company’s employees often are its most valuable asset. It only makes sense, then, that companies take all necessary precautions to protect that asset. Non-solicitation agreements are commonly used to prohibit departing employees and other third parties from plundering the company’s employees. In Wisconsin these agreements are enforceable so long as they satisfy the requirements contained in the statutes and case law. Learn about what non-solicitation agreements are, why they are used, and Wisconsin laws surrounding these agreements.

What are non-solicitation agreements?

Non-solicitation agreements are a type of restrictive covenant that seek to prevent former employees from soliciting employees and/or clients from the business after they voluntarily or involuntarily leave the company. These agreements can be set forth in a standalone document or included in an employment contract or severance package. Accordingly, a non-solicitation agreement may be presented to an employee at the outset of their employment or any time after they’ve become employed so long as the agreement is supported by consideration (i.e. payment, benefit, or something else of value).

Non-solicitation agreements are a type of restrictive covenant in Wisconsin

Why use a non-solicitation agreement?

A business’s most valuable asset often times is its employees or customers. If an employee quits and takes valuable employees and/or clients with them to a competitor, the former is left with very few options to pursue. Non-solicitation agreements protect against this type of situation occurring. This is especially important in industries where there are few employees that possess a special type of skill or there is a limited customer base that exists.

Wisconsin law around restrictive covenants

As discussed above, a non-solicitation agreement has been identified as a “restrictive covenant” in Wisconsin. Wisconsin Statute Section 103.465 is the starting place for any discussion concerning the enforceability of restrictive covenants.

To be enforceable, a restrictive covenant must:

  1. Be necessary to protect the employer/business
  2. State a reasonable time limit
  3. State a reasonable geographic/territorial limit
  4. Not be unreasonable to the employee
  5. Follow public policy

A recent Wisconsin case involving non-solicitation agreements

In January of 2018, the Wisconsin Supreme Court ruled on a case involving a non-solicitation agreement that prohibited the departing employee from soliciting employees (The Manitowoc Company, Inc. v. Lanning, 218 WI 6). Lanning was a former employee of The Manitowoc Company, Inc. that left his job and joined a direct competitor. Lanning contacted various employees of The Manitowoc Company, Inc. about working for the competitor. The Manitowoc Company, Inc. filed a lawsuit against Lanning alleging that he had violated a non-solicitation agreement. The Manitowoc Company, Inc. argued that the non-solicitation agreement did not constitute a restrictive covenant governed by Wis. Stat. § 103.465 because it was not the typical non-compete/non-solicitation agreement; it did not prohibit Lanning from becoming employed with a direct competitor. Rather, it only prohibited him from soliciting employees.

The Supreme Court ruled that the non-solicitation agreement was a restrictive covenant subject to Wis. Stat. § 103.465. Accordingly, the Court applied the 5-factor test described above. The Court ultimately ruled that the non-solicitation agreement was unenforceable because it was far too broad. The Court further declared that the restrictive covenant was not “necessary” for the protection of the Manitowoc Company. It is crucial that companies consider the reasoning set forth by the Court in drafting their respective contracts.

How should I go about drafting non-solicitation agreements?

If your company would like to implement a non-solicitation agreement or other restrictive covenants, it is highly recommended that you consult a knowledgeable business lawyer. The attorneys at McDonald & Kloth, LLC can help you draft or revise restrictive covenants to ensure they are compliant with business and employment laws. Contact 262-252-9122 to schedule your initial legal consultation today.