Update: Wisconsin Supreme Court Ruling Did Not Invalidate Your Non-Compete Agreements

May 19, 2015

The Wisconsin Supreme Court’s recent decision in Runzheimer International Ltd. v. David Friedlen, et al. confirms that an agreement not to fire an existing employee (in other words, granting continued employment) is sufficient consideration in exchange for entering into a non-compete agreement.  Back in November 2014, we highlighted the legal, policy, and practical considerations surrounding the Runzheimer case and the potential impact on Wisconsin employers.  The conclusion of the case provides clarity to employers and establishes that “additional consideration” beyond continued employment is not required when entering into a non-compete agreement with a current employee.

The Court noted several reasons for the decision, including but not limited to:

  1. The Court had not previously decided whether continued employment was sufficient consideration for the non-compete agreement.
  2. While jurisdictions across the country are split on the issue, the majority of jurisdictions hold that continued employment is sufficient consideration in exchange for the non-compete agreement.
  3. Because hiring has long been held to constitute sufficient consideration for a non-compete agreement, from a policy standpoint an alternative ruling would encourage employers to fire employees merely to re-hire them and enter into a non-compete agreement.
  4. If the employer promises continued employment in exchange for the non-compete agreement, and immediately fires the employee, then the employee has other legal remedies available to invalidate the non-compete agreement.

As a result of the Runzheimer decision, those employers that have entered into non-compete agreements with current employees are not exposed to a massive and automatic inability to enforce the agreements.  However, the law surrounding non-compete agreements continues to be employee-friendly and subject to various restrictions for scope, duration, and other factors.  Additionally, prior case law establishes that for continued employment to be sufficient consideration, the employer must condition the employee’s continued employment on execution of the non-compete agreement.  Lastly, related to #4 above, other than noting that a non-compete agreement would likely be invalidated in the event of immediate termination following execution, the Court did not expand on how long an employee must be continuously employed before the “other” legal remedies expire.

As we noted earlier this year, the Wisconsin Senate has proposed a bill that could bring about a substantial change in the way non-compete agreements are viewed and interpreted in Wisconsin.  While the Runzheimer issue was resolved, the bill proposes other employer-friendly provisions that will be worth monitoring in 2015.

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.