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Publication

May 26, 2006Client Alert

"Consider" Your Non-Competes

How do you "consider" your non-competes in Wisconsin? In Wisconsin a non-competition agreement must be supported by legal consideration. At the inception of employment, it is easy for an employer to fulfill this obligation. This is because employment provides sufficient consideration in and of itself.

However, what happens when the employee has already worked for you for some time? It never fails. You forget to have your newest manager sign a non-competition agreement prior to coming on board and do not realize it until she has been on the job for a few months. Correcting the oversight, however, will require a little added work. This is because in Wisconsin, continued employment, without more, is insufficient to support a non-competition agreement.

What is sufficient? Unfortunately, the Wisconsin courts have not directly answered this question. In NBZ v. Pilarski the Wisconsin Court of Appeals suggested that either conditioning employment on signing or promising something in exchange for signing might be sufficient. 185 Wis. 2d 827, 838 n. 4, 520 N.W.2d 93 (Ct. App. 1994). Additionally, under common law consideration consists of a benefit to the promisor or a detriment to the promisee.

Conditioning Employment: Whether the Wisconsin courts will accept conditioning employment upon signing as consideration has yet to be seen. Requiring employees to sign non-competes, especially when in connection with some monetary incentive or risk of losing employment not only provides consideration, but highlights the protected interest underlying the noncompetition agreement. In essence, the employer is sending a signal that its trade secrets, confidential information, customer lists, etc. are valuable and in need of protection.

Payment / Bonus: Paying a bonus might also provide sufficient consideration. However, it is less likely to be considered sufficient if the employee would have received the bonus even if he did not sign the non-compete agreement. On the other hand, discretionary bonuses should be sufficient as long as all those who receive the bonus are required to sign the non-compete.

Promotion: Increased responsibilities or status may provide sufficient consideration (and a need) for a non-compete. The likelihood is increased if the promotion is accompanied by a monetary raise.

Employers often ask, "How much is sufficient?" The courts should not review the amount of consideration. Therefore, any amount should suffice. However, paying an extremely nominal amount may provide the employee with an argument as to the value of the noncompete. Such arguments have not been widely successful.

Even though Wisconsin law in this area is somewhat unclear, the following tips are helpful guidelines as to what the courts will likely consider.

Tips:

  • Always include an accurate description of all consideration as part of the agreement; 
  • Routinely review files to determine if employees have returned their signed agreements; if not, address it immediately. 
  • If you condition employment on signing or provide a bonus in exchange for signing, make sure you follow through with the consequences.

For more information, please contact Farrah N.W. Rifelj at 608.257.3501, or by e-mail at fnwrifelj@michaelbest.com.

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