Court Restricts Non-Solicitation Agreements

FOS’s Fall 2017 newsletter discussed the potential impact on employee non-solicitation agreements of the then-pending Wisconsin Supreme Court case, The Manitowoc Company v. Lanning.

The potential is now the reality.

On January 19, 2018, the Court decided Lanning, 2018 WI 6.

The Court held that a contractual provision restricting a former employee’s solicitation of employees to leave that employer is subject to the same standards as non-compete agreements under Wis. Stat. § 103.465.

Under the statute, a provision in restraint of trade may only be enforced if it is “reasonably necessary to protect the employer and reasonable as to time, geography, and type of conduct covered.”

The Court also held that a provision which restricts the solicitation of all company employees (including, for example, janitors), is not necessary for the protection of the employer, is unreasonable, and so is unenforceable.

“Without a specified territory or class of employees,  the provision restricts Lanning’s conduct as to all employees of Manitowoc Company everywhere.” 2018 WI 6 at ¶ 59.

Lanning should have employees celebrating – and some employers worried.

Many employers routinely incorporate non-solicitation provisions into employment, separation and severance agreements.

Non-solicitation provisions often appear alongside non-compete provisions, which prohibit former employees from working for a competitor or soliciting customers/accounts whom they serviced during their employment.

Taken together, these provisions are intended to protect the employer against a former employee’s poaching of the employer’s clients, customers, or employees – making enforceability a critical issue.

Under Lanning, broad non-solicitation provisions will no longer protect an employer, because the courts will not enforce them.

And Wisconsin courts will not modify—“blue pencil”–unduly broad language, but will declare the entire provision void.

New non-solicitation provisions should be carefully drafted to comply with Wis. Stat. § 103.465.

Every employment situation is unique, of course. Nonetheless, non-solicitation agreements should be tailored to the employer’s particular business interests (spelling out those interests), and be limited to an employee’s working territory and customers.

Employers should also review existing agreements to see whether they comply with Lanning and Wis. Stat. § 103.465.

FOS’s attorneys can draft or review such provisions, together with an agreement’s non-compete and non-disclosure provisions, to evaluate their enforceability.