A Bill introduced in the State Senate earlier this month (2015 Senate Bill 69) could significantly increase the likelihood that an employer is able to enforce a non-compete agreement. As many Wisconsin employers know, non-compete agreements and restrictive covenants in employment contracts are governed by § 103.465 of the Wisconsin Statutes, which currently provides that:
A covenant by an assistant, servant, or agent not to compete with his or her employer or principal during the term of the employment or agency, or thereafter, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any such restrictive covenant imposing an unreasonable restraint is illegal, void, and unenforceable even as to so much of the covenant or performance as would be a reasonable restraint.
Thus, a non-compete agreement is lawful and enforceable under Wisconsin law only if it is (i) limited to a specific territory and time, and (ii) reasonably necessary for the protection of the employer. Any such covenant not meeting both requirements will be declared void and unenforceable.
In making a determination on enforceability of a non-compete agreement, Wisconsin courts have been guided by the following general principles:
- Non-compete agreements are prima facie suspect and must withstand close scrutiny to pass legal muster.
- Restrictive covenants will not be construed to extend beyond that which the language of the contract absolutely requires.
- Ambiguous non-compete agreements should be construed in favor of the employee.
- The court will not “blue pencil” (i.e. rewrite or modify) a defective agreement.
Senate Bill 69 would reverse or modify a number of these general principles. For example, under the Bill, if the employer is able to make a prima facie showing that the restrictive covenant is reasonably necessary, then the burden would be shifted to the former employee to establish that the restriction(s) are overbroad. In addition, even in the event the employee makes such a showing, the Bill provides “the Court shall modify the restraint” to grant the relief “reasonably necessary to protect” the employer’s legitimate business interest(s). In other words, “blue penciling” by the Court would now be permitted in many cases.
Senate Bill 69 would also resolve an issue that is currently pending before the Wisconsin Supreme Court, to wit, whether continued employment is sufficient consideration to create a binding restrictive covenant agreement with an existing employee. For more information about the case, check out my prior article, “Wisconsin Supreme Court Ruling Could Invalidate Your Non-Compete Agreements.” The Bill specifically provides that continued employment (at the same rate of pay/benefits) is sufficient consideration, provided that the employee is subject to termination in the event he or she refuses to sign. Other key components of Senate Bill 69 include the ability to recover attorneys’ fees even if the non-compete agreement does not expressly provide for such recovery and the directive that a “court may not employ any rule of contractual interpretation that requires a restrictive covenant to be construed narrowly, against the restraint, or against the drafter of the restrictive covenant.”
While Senate Bill 69 is still subject to legislative review and approval, if it does become law it would bring about a substantial change in the way restrictive covenants are viewed and interpreted in Wisconsin.
If you have any questions about how the information in this article may affect you or your business, please contact Peter Richter at prichter@stroudlaw.com or (608) 257‑2281 or your Stroud attorney.
DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.
