Will this non-compete or customer non-solicit hold up in Wisconsin?
Wis. Stat. § 103.465 makes a covenant by an assistant, servant or agent not to compete with the employer or principal, during or after the employment or agency, within a specified territory and during a specified time, lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal; and any covenant described in that 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. The Supreme Court of Wisconsin has read that standard as establishing five prerequisites a covenant must meet to be enforceable: it must be necessary for the employer's protection, meaning the employer must have a protectable interest justifying the restriction; it must provide a reasonable time limit; a reasonable territorial limit; it must not be harsh or oppressive as to the employee; and it must not be contrary to public policy. The employer carries the burden of proof on reasonableness, and these clauses are prima facie suspect as restraints of trade, not construed to extend farther than the contract language absolutely requires and construed in favour of the employee. Star Direct applied that standard clause by clause, holding the customer and confidentiality clauses reasonably necessary and therefore enforceable while the business clause was overbroad and unenforceable, and holding the two good clauses divisible from the bad one and enforceable on their own terms; it affirmed in part, reversed in part and remanded. Consideration is not the obstacle it was once thought to be: Runzheimer holds that an employer's forbearance in exercising its right to terminate an at-will employee constitutes lawful consideration for signing a restrictive covenant.
The trap
The statute's last clause is the one that decides Wisconsin cases: an unreasonable restraint is void 'even as to any part of the covenant or performance that would be a reasonable restraint', so there is no blue-pencilling and no judicial narrowing inside a single covenant. Star Direct supplies the test: the foundational inquiry is whether, if the unreasonable portion is stricken, the other provisions may be understood and independently enforced, a fact-intensive question turning on the totality of the circumstances. Indivisibility is usually shown by a textual link between the provisions, such that one cannot be read or interpreted without reference to the other, and overlap between clauses, even substantial overlap, is not necessarily determinative. Drafting one omnibus restriction gives the court nothing to save. On consideration, Runzheimer's holding comes with a qualification the court itself supplied: an employer that terminates shortly after obtaining the signature leaves the employee protected by other contract formation principles such as fraudulent inducement or good faith and fair dealing, so that the covenant could not be enforced. What the court said becomes unenforceable in that case is the restrictive covenant itself, not some implied employment term of reasonable duration. Runzheimer decided consideration only; the court declined to address the reasonableness of that covenant's terms and reversed and remanded for that question.
8 authorities
- statuteWis. Stat. § 103.465enactment date not established
The words that state the rule
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 after the termination of that employment or agency, 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 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.
The words that state the rule
We conclude that the customer and confidentiality clauses are reasonably necessary to protect Star Direct and therefore enforceable. The business clause, however, is overbroad and unenforceable. We also hold that the customer and confidentiality clauses are divisible from the business clause and enforceable on their own terms. We thus affirm in part and reverse in part the decision of the court of appeals, and remand this cause to the circuit court for further proceedings consistent with this opinion.
- case2015 WI 45Runzheimer International, Ltd. v. David FriedlenWis.decided 2015read it at the source ↗
The words that state the rule
We hold that an employer's forbearance in exercising its right to terminate an at-will employee constitutes lawful consideration for signing a restrictive covenant. Although, theoretically, an employer could terminate an employee's employment shortly after having the employee sign a restrictive covenant, *107 the employee would then be protected by other contract formation principles such as fraudulent inducement or good faith and fair dealing, so that the restrictive covenant could not be enforced.
- case2015 WI 45Runzheimer International, Ltd. v. David FriedlenWis.decided 2015read it at the source ↗
The words that state the rule
In this case, the circuit court made no determination as to the reasonableness of the covenant's terms. Because the record and arguments before us are undeveloped on the issue of reasonableness, we decline to address it. Accordingly, we reverse the decision of the circuit court and remand the cause to that court for further proceedings consistent with this opinion.
The words that state the rule
We have interpreted this as establishing five prerequisites that a restrictive covenant must meet in order to be enforceable under Wisconsin law. A restrictive covenant 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. Lakeside Oil Co. v. Slutsky, 8 Wis. 2d 157, 162-67 , 98 N.W.2d 415 (1959). The employer has the burden of proof as to the reasonableness of the non-compete. NBZ, Inc., 185 Wis. 2d at 840 .
The words that state the rule
Restrictive covenants in Wisconsin are prima facie suspect as restraints of trade that are disfavored at law, and must withstand close scrutiny as *288 to their reasonableness. Streiff, 118 Wis. 2d at 611 . They are not to be construed to extend beyond their proper import or farther than the contract language absolutely requires. Id. Rather, they are to be construed in favor of the employee. Id.
The words that state the rule
The foundational inquiry for determining whether a covenant is divisible is whether, if the unreasonable portion is stricken, the other provision or provisions may be understood and independently enforced. This inquiry will be fact-intensive and depend on the totality of the circumstances. In the context of multiple non-compete provisions in a contract, indivisibility will usually be seen by an intertwining, or inextricable link, between the various provisions via a textual reference such that one provision cannot be read or interpreted without reference to the other. *311 Restrictive covenants are divisible when the contract contains different covenants supporting different interests that can be independently read and enforced. 11 Overlap, even substantial overlap, between clauses is not necessarily determinative.
- case2015 WI 45Runzheimer International, Ltd. v. David FriedlenWis.decided 2015read it at the source ↗
The words that state the rule
When an employer promises not to fire an existing at-will employee if the employee agrees to sign a restrictive covenant, the employer violates the spirit of the agreement when the employer fires the employee moments after the employee signs the covenant. Firing the employee moments after the agreement is executed would accomplish "exactly what the agreement of the parties sought to prevent," which constitutes an independent breach, id., ¶ 28 (citation omitted), and would make the restrictive covenant unenforceable. The modification in the employment relationship when an existing at-will employee signs a restrictive covenant is the restrictive covenant, not a new employment contract of reasonable duration; and it is the modification that would become unenforceable if the employer acts in bad faith.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.