There are so many stories about restrictive covenants being unenforceable in Wisconsin that it is refreshing to see a case where a restrictive covenant is enforced – especially at the preliminary injunction stage. This week, the U.S. District Court for the Eastern District of Wisconsin granted a preliminary injunction in favor of BMO Harris Bank, ordering the bank’s former employee to abide by her customer non-solicitation agreement for the remainder of its term. (BMO Harris Bank N.A. v. Lailer, E.D. Wis., Case No. 16-CV-545-JPS, 10/21/16)
The court found that it was highly likely that the bank could show that the agreement was enforceable, and that the harm it would suffer if the agreement was not enforced was far greater than the harm the former employee and her new employer would suffer if the employee was required to abide by her contract. The Court also noted that the agreement is narrowly tailored to protect the bank’s interest in its customer relations without preventing the former employee from maintaining new employment.
The agreement provided that:
During your employment and for twelve months following the end of your employment with the Company, you must not, directly or indirectly, solicit … any client of the Company that you serviced during your last twelve months with the Company to offer any product or service that is the same or similar to any product or service that you provided to that client previously.
The court noted with approval that this covenant was reasonably restricted as to time, because it was limited both retroactively – applying only to customers with whom the employee actually worked within the last year – and prospectively – restricting solicitation only for one year post-employment. It also found that the customer-based restriction could appropriately substitute for a territorial limitation because it was probably more narrowly tailored than a geographic restriction.
Having found that the covenant was reasonable, the court then looked at the harms from enforcing and not enforcing its terms during litigation. Because the former employee served as a liaison between the bank and its high-net worth clients, she had developed good will with clients that properly belonged to the bank. She solicited those clients by telling them that her research in the industry led her to her new employer, effectively telling them that her new employer was a superior financial services provider compared to BMO. Such solicitations, the court ruled, irreparably damaged BMO’s reputation and made this a “particularly strong candidate for injunctive relief.” The potential harm to the former employee and her new employer, by contrast, was fairly limited, as the restrictive covenant would be in effect for only a limited time and they could solicit other potential customers in the meanwhile.
The take-away is that restrictive covenants can be enforced in Wisconsin, as long as they are narrowly drafted.