Many companies require their key employees to enter into non-solicitation agreements which provide, following termination of their employment, that the employee will not attempt to encourage other employees to leave the company to work for a competitor company.
These agreements often also contain similar language with respect to solicitation of the company’s customers, though those types of restrictions are not the subject matter of this blog.
The primary purpose of non-solicitation agreements related to employee poaching is to restrain competition, similar to the purpose of traditional non-compete agreements. It is well established that agreements which prevent a former employee from engaging in a particular activity are known as “restrictive covenants” and are governed under Wisconsin Statute § 103.465.
Manitowoc Company v. Lanning
While vast case law exists assessing the enforceability of non-compete agreements, and particular non-solicitation provisions concerning customers against the required elements set forth in the statute, the issue of whether non-solicitation agreements concerning employee poaching are considered restrictive covenants, therefore subjecting those agreements to the statutory elements, had not been expressly addressed by any Wisconsin court with binding authority until the decision handed down in Manitowoc Company v. Lanning in August 2016. In that case, the Wisconsin Court of Appeals’ decision created legally binding precedent, expressly holding that the Wis. Stat. § 103.465 governs non-solicitation agreements, targeted at preventing employee poaching, like any other restrictive covenant.
In Manitowoc Company vs. Lanning, Mr. Lanning executed a non-solicitation agreement which prohibited him from “directly or indirectly soliciting, inducing, or encouraging any Manitowoc employee to terminate their employment” or to “accept employment with any competitor, supplier or customer of Manitowoc.” Mr. Lanning left the company to work for a competitor company and subsequently began recruiting his former Manitowoc colleagues to join him. Manitowoc successfully sued Mr. Lanning in circuit court, but the ruling was subsequently overturned. In its decision to overturn the circuit court’s ruling, the Wisconsin Court of Appeals expressly held that Wis. Stat. § 103.465 governs non-solicitation agreements of this nature just like any other restrictive covenant. The court’s decision opens the door for former employees to assert objections to non-solicitation agreements that had commonly only been used to circumvent non-competition agreements; namely that the restrictive covenant is overbroad, which the court found to be the case in Manitowoc.
Is your non-solicitation agreement enforceable?
A restrictive covenant is only enforceable if the restriction is justified as necessary to protect the employer’s interest. The decision in Manitowoc was partly based on which individuals Mr. Lanning was prohibited from “soliciting, inducing or encouraging” pursuant to the agreement. The agreement was interpreted using the plain language standard which read that Mr. Lanning was prohibited from soliciting anyone at Manitowoc, from its high-profile employees to its janitors, which was not sufficiently connected to Manitowoc’s competitive interests. The court noted that the agreement would even technically restrict Mr. Lanning from encouraging a former colleague and friend to retire in order to spend more time with family (as retirement would result in that person terminating their employment with Manitowoc). The provision was ruled overbroad and unenforceable, and, since Wisconsin takes an “all or nothing” judicial approach with regard to restrictive covenant enforceability, the entire agreement was rendered unenforceable.
Review of the Manitowoc decision has been granted by the Wisconsin Supreme Court, however, until it ultimately renders an opinion overturning the court of appeals, Manitowoc remains the law of the land in Wisconsin on this issue. If your company utilizes non-solicitation agreements aimed at preventing employee poaching, it is now more important than ever to ensure that the terms of those agreements satisfy the elements of Wis. Stat. § 103.465 and that they are drafted with recognition of the nuances developed over time by the courts in cases related to non-competition agreements enforceability. If you have any questions regarding your company’s non-solicitation agreements or the new law, feel free to contact our office at (920) 499-5700 to arrange a consultation with one of our Green Bay business attorneys.
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