In a case of first impression, the Wisconsin Court of Appeals held that anti-poaching provisions in post-employment restrictive covenants are subject to the statutory regulations that govern noncompete agreements in Wisconsin.
On August 17, 2016, the court in The Manitowoc Companies v. Lanning (August 17, 2016) held that a provision that barred solicitation of a former employee’s coworkers is an unreasonable restraint of trade and thus subject to Wisconsin Statutes (Wis. Stat.) Section 103.465, the statutory section that regulates noncompete agreements between employees and employers.
The holding of Lanning is the next progression in the expansion of the reach of Wis. Stat. §103.465. Prior appellate decisions held that Wis. Stat. §103.465 not only applies to noncompete restrictions but also to nondisclosure agreements with former employees. After Lanning, any covenant between a former employee and employer that seeks to restrain competition or operates as a restraint of trade may be subject to Wis. Stat. §103.465.
Once a court concludes that a post-employment restrictive covenant is regulated by Wis. Stat. §103.465, employers looking to enforce those covenants face an uphill battle due to the lack of judicial “blue-penciling” authority. In other words, if a court determines any part of a restrictive covenant is unenforceable, then the entire restrictive covenant is unenforceable unless the violative provision can be severed and the remaining separate restrictive covenants are enforceable.
As a threshold matter, courts, when determining the enforceability of post-employment covenants under Wis. Stat. §103.465, do not focus on the facts of the post-employment situation. Rather, the judiciary hypothesizes potential factual scenarios that would both violate the language of the provision and not be necessary for the protection of the employer’s legitimate business interests. Once the court can identify such a hypothetical scenario, it will conclude, by way of comparison, that the particular restrictive covenant at issue is unenforceable under Wis. Stat. §103.465 because the employer lacks a legitimate business interest in the restraint.
Moving forward, employers may want to carefully review and narrowly tailor any provisions prohibiting post-employment solicitation of former employees to ensure that the agreements will be enforceable in light of Lanning.