20 Mar It’s Time to Re-evaluate Your Noncompete Agreements
By Jennifer Knudson
On January 19, 2018, the Wisconsin Supreme Court decided Manitowoc Company, Inc. v. John M. Lanning stating that a non-solicitation of employee provision is a restrictive covenant that is subject to the stringent rules under Wis. Stats. § 103.465 regarding noncompete agreements. Specifically, the Court found multiple reasons that the non-solicitation provision in this case was overly broad and not reasonably necessary for the protection of Manitowoc.
John Lanning worked for over 25 years as an engineer for Manitowoc. In 2008, Lanning signed an employment agreement which included a non-solicitation of employee provision. Under the provision, Lanning was restricted for a two year period from soliciting or encouraging any employee to quit his or her job or go work for a competitor, supplier or customer of Manitowoc regardless of job duties.
Lanning resigned from Manitowoc at the beginning of 2010 and went to work for a competitor. Manitowoc claimed that Lanning violated his non-solicitation provision after he left by communicating with at least nine Manitowoc employees about potential jobs with his new employer, took one employee out to lunch in an effort to recruit him, took another employee on a factory tour, and participated in a third employee’s job interview.
Manitowoc sued Lanning to enforce its non-solicitation provision. While Manitowoc won its case at the trial court level, the Court of Appeals reversed the lower court. On appeals, the provision was determined to be overly broad and unenforceable. The Wisconsin Supreme Court agreed with the Court of Appeals.
Non-Solicitation Agreements are Restrictive Covenants
The Supreme Court first considered whether a non-solicitation provision is a restraint of trade under the restrictive covenant statute, Wis. Stat. § 103.465. If the non-solicitation provision was a restraint of trade, it would be subject to § 103.465’s rigorous enforcement standards. The Court previously determined that other types of œnon-compete agreements such as non-disclosure agreements can be restraints of trade. Lanning’s non-solicitation provision in this case restricted both his and a competitor’s ability to compete for the best talent in the labor pool. For this reason, the Court concluded that the non-solicitation provision was a restraint of trade and thus, subject to § 103.465.
Is the Non-solicitation Agreement Enforceable?
After concluding that a non-solicitation was a restraint of trade and thus, subject to § 103.465, the Court applied the standards of the statute to determine if it was enforceable. Among other requirements, only those provisions which are necessary for the protection of the employer will be enforced.
Lanning’s non-solicitation prevented him from soliciting œany employee which included every one of Manitowoc’s 13,000 world-wide employees. The provision prevents Lanning from encouraging any Manitowoc Company employee to quit regardless of the employee’s job, level of position, location of the position, or whether or not Lanning knew or ever interacted with the employee while employed. As a result, the Court determined that the non-solicitation provision was overly broad and therefore, unenforceable under the statute.
What are the Next Steps after Lanning?
After the Manitowoc case, employers need to carefully review their existing noncompete and nonsolicitation agreements. Employers also need to cautious in their drafting of any new anti-poaching agreements so as to meet the guidance found in this case. Specifically, employers should:
Compare their existing nonsolicitation agreements to the one in this case.
- Consider whether the scope of their existing nonsolicitation agreements are too broad.
- Promptly amend any nonsolicitation agreements if necessary.
- Execute any new agreements as necessary.
- Consult legal counsel.
Note that any modifications to existing restrictive covenants and nonsolicitation provisions, even if a minor change, require new consideration such as monetary benefits, continued employment, or modifications to the employment relationship.
This article does not constitute legal advice, and the reader should consult legal counsel to determine how this information applies to any specific situation. If you have any questions regarding your nonsolicitation agreements, please contact Neider & Boucher, S.C. at 608-661-4500.
Neider & Boucher’s Employment Law Team
Jeffrey J. Bartzen
Jennifer L. Knudson
Edward A. Corcoran
Joseph A. Camilli