Introduction Decision Employer options

Introduction

For businesses that have a non-solicitation of employees clause restricting the solicitations of their entire workforce as part of their standard post-employment obligations for departing employees, the August 2016 decision of the Wisconsin Court of Appeals decision in The Manitowoc Company, Inc v Lanning has likely affected the enforceability of such agreements.(1) If the Wisconsin Supreme Court grants review of decision, as requested by The Manitowoc Company, it could result in a reversal or limitation of the newly adopted standard sometime in 2017 or after. As such, the constantly changing legal landscape regarding post-employment obligations may continue in Wisconsin.

Decision

The Wisconsin Court of Appeals held that non-solicitation of employees clauses are subject to the same strict enforceability requirements that already exist in Wisconsin for non-compete agreements, pursuant to Section 103.465 of the Wisconin Statutes. As such, non-solicitation of employees clauses are more likely to be enforceable if they are written in a significantly limited manner covering only certain employees, rather than all-inclusive.

However, the judicial preference for narrowly drafted non-solicitation of employees clauses may be temporary, due to the filing of a petition for review by The Manitowoc Company in September 2016. If the Wisconsin Supreme Court grants the petition for review, the court of appeals' decision could be in jeopardy. With its current conservative, pro-business majority, the Wisconsin Supreme Court realistically could reverse or limit the court of appeals' decision. The Wisconsin Supreme Court may not view a non-solicitation of employees clause to be as alarming as an overreaching non-compete clause, because the former deals only with preventing the solicitation of employees by a departed employee, while the latter potentially restricts someone from earning a living. If the Wisconsin Supreme Court accepts review of this case, the Wisconsin Court of Appeals' decision could be reversed – which would again allow a more expansive non-solicitation of employees clause covering all employees.

Employer options

Because the law in Wisconsin regarding the non-solicitation of employees clauses is currently in flux, employers have several potential options with respect to such clauses at this time:

  • Amend and limit any non-solicitation of employees language to be consistent with the current state of the law as expressed by the court of appeals. Not only is this a reasonable and fair approach, but it is the only way to increase the probability that a challenged non-solicitation of employees clause would be enforceable based on standing precedent. Under this approach, the non-solicitation language should apply only in a limited manner. For example, an employer would limit the clause to prohibit solicitation of only those employees with whom the departing employee regularly interacted while performing his or her duties, if those interactions were necessary to accomplish the departing employee's duties. However, if this option is chosen and the Wisconsin Supreme Court reverses the court of appeals' decision, employers would need to revisit whether to once again modify their non-solicitation of employees clauses by returning to an expanded term. That would mean again securing signatures on new agreements, which ? depending on the number of employees involved ? could be administratively burdensome.
  • Maintain broader non-solicitation of employees language at this time until the Wisconsin Supreme Court decides whether to hear the case and then evaluate how it decides this issue. Some employers might prefer this approach because they will not need to change their non-solicitation of employees clauses and secure employee signatures if the Wisconsin Supreme Court reverses. However, taking this approach is risky because if the Wisconsin Supreme Court decides to accept review, the issuance of a decision could take more than a year. During this period of review, if the broader non-solicitation language were challenged in litigation by an employee, an employer would be more likely to lose in court based on the court of appeals decision. If the non-solicitation of employees clause is part of a contract that also addresses non-compete and non-disclosure post-employment obligations, a severability clause will be critical to include so that the remainder of the agreement survives in the event that the non-solicitation of employees clause is voided as overly broad.
  • Not use a non-solicitation of employees clause at this time. Not all employers include such a term as part of post-employment obligations of departing employees, and it is entirely discretionary whether an employer has such a post-employment restriction. If an employer decides that it is comfortable with the possibility that a former employee could solicit current employees, then the company simply does not need this term at this time, and could add it after the Wisconsin Supreme Court clarifies this issue or chooses not to accept review.

The decision as to which option to use must be carefully discussed with a company's management team and legal counsel to consider the risks involved, particularly in regard to the second option. Once that decision is made, it may be that an unrelated area of post-employment restrictive obligations becomes the subject of a new appellate court opinion, so that further changes to an employer's agreement become necessary. The one certainty is that post-employment restrictions is an evolving area of the law. Employers must remain attentive to this changing legal landscape in order to maximise the enforceability of restrictive agreements.

For further information please contact Jordan Rohlfing or Stephen A Di Tullio at DeWitt Ross & Stevens SC by telephone (+1 608 255 8891) or email (jxr@dewittross.com or sad@dewittross.com). The DeWitt Ross & Stevens SC website can be accessed at www.dewittross.com.

Endnotes

(1) 2016 WI App 72, 371 Wis 2d 696, 885 N W 2d 798.

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