Current Wisconsin law provides that employers may place restrictions on an employee or agent’s right to compete with the employer or principal. These restrictions are limited to the term of the employment or agency relationship plus a reasonable and specified time afterwards, within a specified territory. Furthermore, the restrictions must be reasonably necessary to protect the employer or principal. By law, these restrictions must be supported by sufficient consideration that would make the deal worthwhile to the employee.
Restrictive Covenants – Current Law
Wisconsin common law has been unclear on the concepts of “sufficient consideration” when it comes to enforcing new restrictive covenants on current employees. The Wisconsin Supreme Court recently held that continued employment is sufficient consideration for a new restrictive covenant. Essentially, if an employer required an existing employee to sign a non-compete agreement without any other consideration, a court would enforce that covenant.
This decision seems to be in line with new legislation proposed by Republican Senator Paul Farrow this past March. Known as Senate Bill 69, its aim is to overhaul the existing Wisconsin law on restrictive covenants, making it easier for employers to impose and enforce employee non-compete agreements. The two competing interests in covenants not to compete are:
- Protecting legitimate business interests, and
- Protecting employee’s ability to earn a living.
Proposed New Law – SB69
As Wisconsin people well know, these interests are vague at best. Senate Bill 69 seeks to identify what legitimate business interests are. The list includes:
- Protecting trade secrets
- Protecting substantial current or potential client relationships
- Protecting client goodwill associated with the business’ current location
- Protecting the value of unique or specialized training.
The proposed Bill also seeks to clarify the process by which Wisconsin Courts determine whether restrictions are overbroad or unreasonable. This includes rebuttable presumptions pertaining to the length of the restriction, which may allow employers more confidence when drafting such restrictive covenants. For example, the Bill proposes a presumption that a restriction of six months or less is reasonable, and a restriction lasting two years or longer is unreasonable. However, employers are not restricted to those time frames if they can provide clear and convincing evidence supporting the need for a longer restriction.
Senate Bill 69 Favors Business Interests
The proposed Bill allows for judicial interpretation and manipulation of terms it deems overly broad. This is in contrast to current Wisconsin law, which requires judges to invalidate an overly broad restrictive covenant in its entirety if any part is found unreasonable.
Senate Bill 69 protects businesses in a number of ways. For example, the proposed Bill prohibits:
- Any type of statutory interpretation which would lead to a narrow interpretation of the restriction, or any interpretation against the employer;
- Invalidation of a restrictive covenant on public policy grounds, unless the policy is explicitly articulated and outweighs the need to protect legitimate business interests.
- Consideration of any “individualized economic or other hardship” caused by enforcing the restrictive covenant against the employee, unless exceptional circumstances can be shown.
You can read the full text of Senate Bill 69 here. If you have questions about the proposed bill and how it may affect you, give us a call at (414) 278-7000 or contact us online. The law firm of Kerkman Wagner & Dunn has the depth and knowledge to handle all of your business needs.