Non-solicitation agreements are provisions included in most employment contracts to prevent an employee from leaving the company, going to work for a competitor, and poaching the employer’s clients, prospective clients or employees. Non-solicitation agreements differ from non-compete agreements in that while a non-solicitation agreement focuses more on preventing the employee that is leaving from bringing other employees to direct competitors, a non-compete only restricts an employee from working for a direct competitor for a reasonable amount of time after leaving the company.
Wis. Stat. §103.465 is entitled “Restrictive covenants in employment contracts” and directly refers to, and governs, non-compete agreements. “A covenant . . . not to compete with his or her employer or principal . . . within a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.” Wis. Stat. §103.465. While §103.465 traditionally has applied only to non-competes, the Court in Manitowoc Company, Inc. v. Lanning applied it to a non-solicitation agreement as they deemed it an unreasonable restraint on trade because it restricted Lanning’s ability to engage in the free market.
In Manitowoc Company, Inc. v. Lanning, the limits of what constitutes “reasonably necessary for the protection of the employer or principal” were put to the test in interpreting the language of a non-solicitation agreement between Manitowoc Company and Lanning. Lanning decided to terminate his employment with Manitowoc Company two years after signing the employment agreement and took a position at SANY America, a direct competitor with Manitowoc Company. Manitowoc Company, Inc. v. Lanning, 2018 WI 6. Lanning’s non-solicitation agreement prohibited him, for two years following the termination of his employment, from soliciting, inducing, or encouraging any Manitowoc Company employee to terminate their employment or accept employment with a direct competitor. Id. at ¶17.
The Court in Manitowoc Company, Inc. was tasked with determining whether the non-solicitation agreement that Lanning signed imposed an unreasonable restraint of trade, rendering the agreement invalid under Wis. Stat. §103.465. The Court, upon determining that the non-solicitation agreement was a restraint on trade so as to be governed by Wis. Stat. §103.465, next had to consider whether the agreement was enforceable. To determine whether a restrictive covenant is enforceable under §103.465, there are five prerequisites that must be established, as outlined in Lakeside Oil Co. v. Slutsky. The five prerequisites are that the restraint must:
(1) be necessary for the protection of the employer, that is, the employer must have a protectable interest justifying the restriction imposed on the activity of the employee; (2) provide a reasonable time limit; (3) provide a reasonable territorial limit; (4) not be harsh or oppressive as to the employee; and (5) not be contrary to public policy.
Star Direct, Inc. v. Dal Pra, 2009 WI 76.
If the non-solicitation agreement were to violate any of the prerequisites, the entire provision is invalid. Manitowoc Company, Inc., 2018 WI 6 at ¶41. The Court stopped their analysis after considering the first prerequisite because they found that Manitowoc Company did not have a protectable interest to justify the restriction.
The language of the non-solicitation agreement prevented Lanning from encouraging any Manitowoc Company employee to terminate their employment for any reason, or soliciting any Manitowoc employee to take any position with any competitor of Manitowoc Company. The Court found this language to be overly broad and restrictive because Lanning does not have a relationship with, or even know, every single one of Manitowoc Company’s 13,000 world-wide employees, but he was precluded from encouraging every single one of them to terminate their employment. Despite Manitowoc Company arguing that they had a protectable interest in maintaining their workforce, the Court found the language of the non-solicitation agreement to be overbroad and that there was no protectable interest justifying the restriction because “an employer is not entitled to be protected against legitimate and ordinary competition of the type that a stranger could give.” Id. at ¶49.
What does this mean going forward?
The ruling in Manitowoc Company allows for non-solicitation agreements to be enforced under Wis. Stat. §103.465 so long as the restrictions on trade are reasonably necessary to protect the employer and reasonable as to time, geography, and type of conduct covered. Going forward, this case does not radically change the landscape of non-solicitation agreements; rather, it ensures that non-solicitation agreements must be specific and not overly broad so as to place unreasonable restraints on an employee’s ability to work.
