Time to Reconsider Your Non-Solicitation Agreement?
Does your business have a non-solicitation of employees clause restricting solicitations of your entire workforce as part of its standard post-employment obligations for departing employees? If so, the Wisconsin Court of Appeals decision from August 2016, in Manitowoc Company, Inc. v. Lanning, 2016 WI App 72, 371 Wis. 2d 696, 885 N.W.2d 798, likely has impacted the enforceability of such an agreement. Moreover, if the Wisconsin Supreme Court grants review of the Court of Appeals decision, as was requested by The Manitowoc Company, it could result in a reversal or limitation of the newly adopted standard sometime in 2017 or after. As such, the constantly changing legal landscape regarding post-employment obligations may continue in Wisconsin.
Specifically, the Wisconsin Court of Appeals held that non-solicitation of employee clauses are subject to the same strict enforceability requirements that already exist in Wisconsin for non-compete agreements, pursuant to Wis. Stat. § 103.465. As such, non-solicitation of employees clauses are currently more likely to be enforceable if they are written in a significantly limited manner covering only certain employees, rather than in an all-inclusive manner covering all Company employees. However, it is important to emphasize and understand that the judicial preference for narrowly drafted non-solicitation of employee clauses may be only temporary due to the filing of a Petition for Review by The Manitowoc Company in September. If the Wisconsin Supreme Court grants the Petition for Review, the Court of Appeals’ decision could be in jeopardy. With its current conservative, pro-business majority, the Supreme Court realistically could reverse or limit the Court of Appeals’ decision. The Wisconsin Supreme Court may not view a non-solicitation of employees clause to be as alarming as an overreaching non-compete clause, because the former only deals with preventing the solicitation of employees by a departed employee, while the latter potentially restricts someone from earning a living. If the Wisconsin Supreme Court accepts review of this case, there is a real possibility that the Wisconsin Court of Appeals’ decision could be reversed -- which would again allow a more expansive non-solicitation of employees clause covering all employees.
Because the law in Wisconsin regarding non-solicitation of employees clauses is currently in flux, employers have several potential options with respect to such clauses at this time. Employers may choose to:
Amend and limit any non-solicitation of employees language to be consistent with the current state of the law as expressed by the Court of Appeals. Not only is this a reasonable and fair approach, but it is the only way to increase the probability that a challenged non-solicitation of employees clause would be enforceable based on standing precedent. Under this approach, the non-solicitation language should only apply in a limited manner. For example, an employer would limit the non-solicitation of employees clause to prohibit solicitation of only those employees with whom the departing employee regularly interacted while performing job duties, if those interactions were necessary to accomplish the departing employee's job duties. However, if this option is chosen and the Wisconsin Supreme Court reverses the Court of Appeals, employers would need to revisit whether to once again modify their non-solicitation of employee clauses by returning to an expanded term. That would mean again securing signatures on new agreements, which, depending on the number of employees involved, could be administratively burdensome.
Maintain broader non-solicitation of employee language at this time until the Wisconsin Supreme Court decides whether to hear the case and then evaluate how it decides this issue. Some employers might prefer this approach because they would not need to change their non-solicitation of employee clauses and secure employee signatures if the Supreme Court reverses. However, taking this approach is slightly risky because if the Supreme Court decides to accept review, the issuance of a decision could take more than one year. During this period of review, if the broader non-solicitation language were challenged in litigation by an employee, an employer is more likely to lose in court based on the Court of Appeals decision. It is important to note that if the non-solicitation of employees clause is part of a contract that also addresses non-compete and non-disclosure post-employment obligations, a severability clause would be critical to include so that the remainder of the Agreement survives in the event that the non-solicitation of employees clause is voided as overly broad.
Not use a non-solicitation of employees clause at this time. Not all employers include such a term as part of post-employment obligations of departing employees, and it is entirely discretionary whether an employer has such a post-employment restriction. If an employer decides that it is comfortable with the possibility that a former employee could solicit current employees, then the company simply does not need this term at this time, and could add it after the Wisconsin Supreme Court clarifies this issue or chooses not to accept review.
The decision as to which option to use must be carefully discussed with a Company's management team and legal counsel to consider the risks involved, particularly in regard to the second option. Of course, once that decision is made, it may be that an unrelated area of post-employment restrictive obligations becomes the subject of a new appellate court opinion, so that further changes to an employer's agreement become necessary. The one certainty is that post-employment restrictions is an evolving area of the law. Employers must remain attentive to this changing legal landscape in order to maximize the enforceability of restrictive agreements.
Please contact either of the authors of this article, Steve DiTullio or Jordan Rohlfing, or your DeWitt attorney, if you have follow-up questions.
About the Authors
Jordan Rohlfing is an associate in DeWitt's litigation practice group. She is dedicated to providing top-quality legal services for all of her clients. Working with partners at DeWitt, Jordan has assisted with post-employment restrictive covenant disputes, civil litigation, breach of contract cases, real estate transactions, as well as employment law matters. Contact Jordan by email or phone (608) 283-5509
Steve DiTullio is a partner practicing out of our Madison office. He is a member of the Labor & Employment Relations and Litigation practice groups. Contact Steve by email or by phone at 608.252.9362.
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