The enforceability of agreements restricting competition during and after employment has been a volatile issue for at least the last year.
At the federal level, final Federal Trade Commission rules are anticipated to be issued in April, 2024 which would ban most con-competes in employment. In addition, several states, including Illinois, have enacted legislation which would severely limit, if not eliminate, their allowable restrictions. FOS has addressed these issues in multiple newsletter articles and Client Alerts. https://foslaw.com/ftc-issues-proposed-rule-to-ban-most-non-competes/. FOS most recently addressed the issue in its fall 2023 newsletter. https://foslaw.com/wp-content/uploads/2023/10/Fall-2023-Client-Newsletter.pdf
Just two weeks ago, Assembly Bill 481, which would ban most employment non-compete agreements, was introduced in the Wisconsin legislature. This proposed legislation would modify Wisconsin’s current non-compete statute and its common law construction by the judiciary. Under the current standard, non-compete agreements, whether applied during or after an employee’s employment, are legally enforceable if they (1) are reasonably necessary for the protection of the employer; (2) last for a reasonable time period; (3) cover a reasonable territory; (4) are reasonable to the employee; and (5) are not unreasonable to the general public.
Under the proposed bill, non-compete agreements that restrict an employee’s activities during employment would be subject to roughly the same five factors currently used. However, the proposed bill would depart from current law in several significant ways.
First, the bill would restrict non-competes during an employee’s term of employment which impose an unreasonable restraint “on trade,” a term that is not defined. This addition may provide another vehicle for the restriction of enforceable agreements.
Second, non-compete agreements that apply after an employee’s term of employment ends would be illegal, void, and no longer enforceable. This restriction would not apply to nondisclosure agreements or to non-compete agreements that are limited to restricting the unauthorized use of customer lists or intellectual property.
Third, the bill would require employers to post a government-approved notice stating that post-employment non-competes are invalid as described above.
These modifications and restrictions, should they become law, would apply only to agreements entered into after the legislation is enacted and would not apply to agreements entered into before that date.
According to commentators, absent changes in the Wisconsin legislature’s political landscape, it is unlikely this bill will become law. Nonetheless, the bill’s introduction highlights the continuing uncertainty in this legal area. Given this uncertainty, employers should take care to review their non-compete agreements to ensure they are as tailored as possible and can be adapted, if possible, should the applicable law change. Your FOS attorney can help your company ensure your non-compete strategies are as adaptable as possible to potential future legal rules, statutes, and court rulings.
