Wisconsin Supreme Court: Continued Employment Constitutes Sufficient Consideration for Restrictive Covenants in Wisconsin

Resolving previously unsettled law in Wisconsin, the Wisconsin Supreme Court recently held in Runzheimer International Ltd v. Friedlen that continued employment of an at-will employee following the execution of a restrictive covenant, such as a non-competition agreement, is sufficient consideration to enforce the restrictive covenant.

In Friedlen, a 15-year employee was asked to execute a non-competition agreement by his company. He continued to work at the company for approximately two more years and was thereafter terminated. After the terminated employee began to work for a direct competitor, the company sued, relying on the non-competition agreement that the employee had executed during his employment. The employee argued that the non-competition agreement was unenforceable based on lack of consideration, primarily because it was executed after he had already been employed for 15 years and the company did not provide him anything additional beyond continued employment.

The primary issue decided by the Wisconsin Supreme Court was whether an employer’s forbearance of its right to terminate an existing at-will employee in exchange for the employee’s agreement to comply with a post-employment restrictive covenant constitutes lawful and sufficient consideration. Holding in the affirmative, the Court followed other jurisdictions (the majority of which hold that continued employment constitutes sufficient consideration) and, further, based its decision on general contract principles. The Court also distinguished circumstances where an existing employee is terminated shortly after signing the restrictive covenant on grounds that under those circumstances, the restrictive covenant would likely be voidable under the principles of contract law or, alternatively, would constitute a breach by the employer of the doctrine of good faith and fair dealing.

Jurisdictions around the country are split on this issue. By way of example, in Illinois, continued employment must generally be for a “sufficient period of time” (which has been construed by some Illinois courts to be at least two years of continued employment). Other jurisdictions hold that continued employment, regardless of duration, is insufficient consideration to enforce a restrictive covenant. Now, that issue appears to be settled in Wisconsin.