On January 19, 2018, the Wisconsin Supreme Court issued its long-awaited decision in Manitowoc Company, Inc. v. Lanning, holding that employee non-solicitation provisions are restraints of trade subject to the reasonableness requirements under Wisconsin’s statute regulating non-compete agreements. In Wisconsin, as in most states, employers may lawfully utilize narrowly tailored non-competition agreements, which often include customer non-solicitation clauses. But what about employee non-solicitation clauses? As we noted in our prior Client Alert, the Court of Appeals decision in Lanning cast a long shadow of doubt on whether such agreements would be enforceable, however drafted. And, while the Supreme Court affirmed the Court of Appeals decision that employee non-solicitation agreements are subject to scrutiny under the state’s non-competition statute, the Supreme Court has offered some clarity for drafting potentially enforceable employee non-solicitation provisions in agreements.
The agreement in question provided that Manitowoc Company employees will not “solicit, induce or encourage any employees to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc.”
The Supreme Court made two rulings on this clause:
First, the Supreme Court held that this employee non-solicitation clause is governed by Wis. Stat. § 103.465, the Wisconsin statute governing non-competition agreements. While the Manitowoc Company argued that the agreement is not a traditional “non-competition” agreement, the Supreme Court made short work of this argument, holding that the clause restrains trade, and restricts the mobility of employees, and is therefore governed by the statute.
Second, the Supreme Court held that the agreement is unreasonable and invalid under § 103.465. In particular, the Supreme Court pointed out that the agreement bars the solicitation of any employee of Manitowoc Company, regardless of whether the soliciting employee knew or had any contact with the employee being solicited; regardless of whether the employee was familiar with the individual skill sets of the solicited employee; and regardless of whether the employee being solicited had any specialized knowledge regarding Manitowoc Company’s business or customers, etc..
Following the Wisconsin Supreme Court’s decision, it appears that there is substantially more “room” for employers to draft potentially compliant agreements than under the Court of Appeals’ decision. The takeaway for employers is that agreements should be narrowly drafted to limit the application of non-solicitation agreements to employees that an employee actually worked with or had specialized knowledge regarding, and/or employees with knowledge of sensitive, confidential, and trade secret information of the employer.
As with any major Supreme Court decision regarding non-competition agreements, this decision provides a good moment in time for businesses to re-visit their confidentiality, non-solicitation, and non-competition agreements. If you have not reviewed your agreements recently, this is a good time to do so.