On April 30, 2015 the Wisconsin Supreme Court issued a decision that finally clarifies the enforceability of a non-compete agreement signed by an existing employee. It has long been settled that new employees can be required to sign non-compete agreements because the employee is receiving employment in exchange for the promise not to compete during or after employment. What has been unclear was whether an employer can use continued employment as the “consideration” in exchange for the employee’s promise. “Consideration” is a legalese term in contract law. It is the “stuff” exchanged by parties to a contract. For example, if you buy a dog for $300, one party gives $300 as consideration and the other party gives a dog as consideration. A promise to do (or not do) something can be consideration.
In Runzheimer International Ltd. V. Friedlen, 2015 WI 45 (April 30, 2015) the Supreme Court confirmed that continued employment can be the value exchanged for a non-compete. ““We hold that an employer’s forbearance in exercising its right to terminate an at-will employee constitutes lawful consideration for signing a restrictive covenant.” wrote the Court. A non-compete may still be unenforceable if the terms and conditions are unreasonable as to the geography or time after employment that an employee is prohibited from working. It may also be unenforceable if the employer acts in bad faith.
For more information about the ruling, visit the State Bar of Wisconsin’s website which has an article summarizing the Court’s decision. Also coming along in the world of non-compete agreements and restrictive post-employment contracts is proposed legislation that could change how non-competes are enforced after employment. If enacted, the legislation would be favorable to employers who can show a legitimate business interest in the restrictions, that adequate consideration was given to the employee, and that the restrictions are reasonable considering the industry and nature of business. For more information about the pending legislation the State Bar of Wisconsin has an article that summarizes the proposal and it’s possible impact on business owners and employees.
Johanna R. Kirk