How To Get Out Of A Non Compete Agreement In Wisconsin

Employers that use noncompetition agreements might exist tempted to rely on a recent appellate decision that gave the employer-litigant broad berth to restrict an employee'southward postemployment activities. Only the opinion's nonprecedential status and its conflict with published Wisconsin cases brand the opinion a shaky and probable brusk-lived leg on which to stand.

Employers who would like to make their covenants not to compete more than restrictive may have gained false confidence from a contempo Wisconsin Court of Appeals decision whose outcome was counter to existing example constabulary. In Baronial 2012, in Cardinal Railroad Development LLC v. Guido, the courtroom of appeals appeared to expand the scope of customers that an employer can prohibit a one-time employee from doing business organization with through use of a covenant not to compete or noncompetition agreement.^ane The court upheld a provision prohibiting a erstwhile employee from attempting to solicit whatsoever of the employer's customers with whom the former employee had had any contact at whatever time during his employment.²

J. Nels Bjorkquist, U.W. 2001, focuses his practice on direction-side employment police, appellate advocacy, and commercial litigation at Mawicke & Goisman Due south.C., Milwaukee.

This decision may tempt employers to severely limit employees' postemployment activities past revising their covenants non to compete to prohibit employees from competing for any customers with whom they ever dealt. Employers and their counsel should resist this temptation, however, because Fundamental Railroad conflicts with established Wisconsin law. As a upshot, such a prohibition could invalidate all protections independent in the covenant not to compete and jeopardize related covenants, such equally nondisclosure covenants, if they are indivisible from the covenant not to compete.

Notably, the covenant in Key Railroad would likely have been invalidated as unreasonable and overbroad had the employee prevented the court of appeals' admitted confusion by citing the controlling constabulary in his brief. Thus, the case stands as a cautionary tale to all attorneys, even those who do non practice employment constabulary: To avoid dislocated or wrong outcomes, support your arguments with clear citations to the controlling law on dispositive problems.

The pre-Key Railroad Law on Covenants Not to Compete

Rope laying on the grass "Restrictive covenants in Wisconsin are prima facie suspect every bit restraints of trade that are disfavored at police, and must withstand shut scrutiny as to their reasonableness."^three The burden to prove a covenant's reasonableness is on the employer (or principal) seeking to enforce a noncompetition or nondisclosure covenant against a former employee (or agent), under the following five criteria:

1) The covenant must be reasonably necessary for the protection of the employer'due south legitimate interests (for example, prohibiting merely unfair competitive activities).

2) The covenant must restrict the employee for only a reasonable menstruation (for case, typically two years or less).

three) The covenant must restrict activities only within a reasonable zone (for example, restricting activities within the geographic area in which the employer or employee conducted business, or restricting activities with customers with whom the employee recently dealt or about whom the employee learned nonpublic information during the employment).

4) The covenant must not be harsh or oppressive to the employee (that is, information technology must let the employee to earn a livelihood).

5) The covenant must not be opposite to public policy (that is, it must non unduly impede the mobility of workers or deprive the community of the only provider of a much-needed service).⁴

The Key Railroad decision hinged on the first and third of these criteria and focused on which customers and for whose business organisation the employee could properly be restricted from soliciting and competing.

Section 103.465 of the Wisconsin Statutes and aplenty instance law provide that any employment-related restrictive covenant that is unreasonable with respect to whatsoever of these 5 criteria is unenforceable in its entirety.⁵ Wisconsin courts have been barred from rewriting unreasonably harsh employment covenants to make them enforceable – a practice known equally "blue-penciling" – since adoption of Wis. Stat. section 103.465 in 1957.⁶ An unenforceable covenant not to compete may invalidate otherwise reasonable covenants – for case, a nondisclosure agreement or a nonsolicitation understanding – if the covenants are indivisible equally a result of intertwined text or other inextricable links.⁷

New Example Conflicts with Existing Law

Employers drafting or revising restrictive covenants should not rely on the unpublished Key Railroad determination considering it conflicts with at least 1 published court of appeals determination, Equity Enterprises Inc. v. Milosch, in which the court held that an employer must narrowly ascertain which customers it has a legitimate interest in protecting from competition.⁸ The Milosch court held that the employer could not prohibit a quondam employee from competing for all customers with whom he had contact at whatever fourth dimension during his fifteen-year employment because such an unlimited look-back catamenia is "unreasonable," "invalid," and "not reasonably necessary to protect the [employer's] legitimate business interests."^nine

The court of appeals cited this portion of Milosch with approval in 2009 in Techworks LLC five. Wille, in which the court canonical a two-year look-back catamenia regarding customers for whom the employee could not compete.¹⁰ The Wisconsin Supreme Court signaled its approval of Milosch'due south invalidation of the unlimited look-back period in its most recent opinion regarding covenants not to compete, Star Direct Inc. v. Dal Pra.¹¹ Thus, Key Railroad is in directly conflict with Milosch and is unsupported by Techworks and Star Directly.

Employee Confused the Courtroom past Not Citing Controlling Law

Guido's cursory to the court of appeals contained ii sentences in which he implied that the one-twelvemonth restriction would exist extended indefinitely into the past then as to bar him from soliciting any customer with whom he ever had any contact at any time while employed by his previous employer.¹² The Milosch court specifically rejected enforcement of restrictive covenants that contain such unlimited look-back periods considering an employer is not entitled to protection from competition by former employees for the business of customers who may take long agone transferred their business to competitors.¹³ Guido, however, failed to cite Milosch, Techworks, or Star Directly for this proposition, instead citing Milosch on a carve up topic elsewhere in his brief to the court of appeals.¹⁴

The courtroom of appeals plain mistook Guido every bit suggesting that an unlimited look-dorsum menstruum would extend the i-year brake of the covenant not to compete indefinitely into the future. ¹⁵ The courtroom wrote: "It is not entirely articulate what Guido is arguing, but this is our best attempt at comprehending it."^sixteen

Rather than agreement Guido to exist arguing that the covenant'southward unlimited look-back menstruation was retrospectively indefinite, the courtroom interpreted his argument to be that the covenant was indefinite as to the duration of its future application, so it issued a clipped rebuke: "The one-year prohibition commences when he leaves employment, and terminates one year afterward. There is nothing indefinite about it."¹⁷ This remark indicates the court did not capeesh the point the employee appears to take attempted to raise regarding the look-dorsum menstruum. As a result, the courtroom did not address Milosch's bar confronting prohibiting onetime employees from soliciting any customers with whom they had ever dealt at whatsoever signal in the past every bit an employee.¹⁸

Issues to Consider When Drafting Restrictive Covenants

(Excerpted from Peter Albrecht et al., 3 Wisconsin Employment Law ch. 15 (State Bar of Wisconsin Elevation 5th ed. 2013) (forthcoming))

Department 103.465 of the Wisconsin Statutes and associated case law govern restrictive covenants, also known every bit noncompetition agreements or nondisclosure agreements, and identify specific requirements for enforceability. To draft enforceable restrictive covenants, attorneys must consider and accost each of these requirements.

i) The covenant must be reasonably necessary to protect the employer's legitimate interests. The two well-nigh common employer interests are protecting goodwill the employer has developed with customers or clients and protecting confidential information. The first involvement applies when the employee has developed rapport with the employer's customers, leading the customers to acquaintance their goodwill toward the enterprise more with the employee than the employer. The 2nd interest applies when the employee has admission to competitively significant confidential data. Employers should decide which of these interests, or both, apply to each employee and tailor the restrictive covenant to protect the interest or interests every bit narrowly as possible.

2) The covenant must restrict the employee for only a reasonable period. A restrictive covenant that does not comprise a time limitation is unreasonable per se. In that location are no other bright-line rules as to the reasonableness of a time limitation; however, two years has emerged as a rule of pollex for drafters. Employers should consider the reasonableness of whatever time limitation in light of the interest justifying the restriction. For example, it may be hard to justify a restriction premised on client contacts that lasts longer than the employee's bodily term of employment. However, a restriction based on access to confidential information may reasonably last equally long every bit the information remains confidential.

iii) The covenant must restrict activities simply within a reasonable zone. When a restrictive covenant is based on customer contacts, the brake may be limited to a specific geographic region or group of customers, a specific action, or both. A geographic restriction extending further than the territory really served by the quondam employee volition likely exist found unreasonable. Furthermore, if an employee serves customers throughout a big region similar the land or state, a restriction based on customer contacts likely must be limited to the specific customers the employee serves or a very limited set of potential customers. A brake on specific activities should utilize but to competitive activities, and not to all employment activities within the geographic region. This would unduly limit the employee's ability to seek other work in the area.

When a restrictive covenant is based on access to confidential information, which is highly mobile, a geographical restriction may non exist required. If the brake is based on admission to confidential information almost customers, the employee may reasonably be restricted from contact with all the employer's customers, rather than just those customers with whom the employee has developed a human relationship.

4) The covenant must non be harsh or oppressive to the employee. This factor focuses on whether and to what extent the restriction inhibits the employee'south ability to pursue a livelihood. The reasonableness of a item restrictive covenant may depend on the employee'due south age, didactics, and physical condition. Even if justified from the employer's perspective, a restriction should not finer prohibit the employee from using his or her particular skills in any other employment.

5) The restrictive covenant must not exist contrary to public policy. This occurs near frequently when a restriction creates a shortage of certain employees or of a certain kind of service in an area. This is especially relevant to particular occupations, such as doctors or lawyers, where a person's interest in unfettered selection of service providers is particularly important.

Conclusion

Because courts may review restrictive covenants with varying degrees of hostility, it is of import that an employer and its attorney carefully consider the purpose of the covenants and narrowly tailor them to meet the employer's needs. This volition increase the likelihood that the covenant will be enforced and protect the employer's business concern interests after an employee separation.

For boosted data on restrictive covenants, including noncompetition agreements and nondisclosure agreements, meet Peter Albrecht et al., 3 Wisconsin Employment Police ch. xv (State Bar of Wisconsin PINNACLE 5th ed. 2013) (forthcoming in June). This book is bachelor in print or online through Books UnBound. Annotated sample restrictive covenant provisions, based on appendix 15A of Wisconsin Employment Law, are bachelor for download as a Wisconsin Lawyer WebXtra.

Turning Possible Victory into Sure Defeat

The employee's failure to conspicuously call the court's attention to the decision-making case police on this issue not only confused the court but also likely changed the effect of the case. The court noted that Guido's failure to "develop any legitimate argument" contradicting Key Railroad Evolution's lengthy discussion of the restrictive covenant's alleged reasonableness resulted in a concession on the issue of enforceability.^nineteen

Had the employee cited and quoted the relevant portion of the Milosch decision in his brief, withal, the courtroom might have invalidated the entire covenant non to compete pursuant to Wis. Stat. section 103.465. Instead, the court became confused, admitted that it was guessing (probably incorrectly, information technology turns out) every bit to what the employee'south legal argument was, and issued a decision that unwittingly conflicts with its decision in Milosch.

Every bit a result of this confusion, the court of appeals reversed the summary judgment entered by the circuit court in favor of Guido and remanded the case to the excursion court for determination of whether he violated the covenant not to compete.²⁰ Although the circuit court had previously found the restrictive covenant to be enforceable, it also found that Key Railroad Evolution could not avert dismissal in favor of Guido because information technology had not provided sufficient testify to create an issue of material fact on whether Guido had violated the covenant.²¹ The court of appeals agreed that the covenant was enforceable simply reversed and remanded for further proceedings apropos the declared violations.²²

Guido did non move for reconsideration or file a petition for review by the Wisconsin Supreme Court, so the unpublished conclusion of the courtroom of appeals stands. Pursuant to the remand, the circuit courtroom reopened the case, and the CCAP docket reveals that the parties remain in contentious litigation, replete with discovery disputes, regarding whether Guido violated the restrictive covenants.

Employers Should not Rely on Court's Dislocated Decision in Key Railroad

Considering of the troubling conflict between the Milosch and Cardinal Railroad decisions, employers should not rely on Key Railroad when drafting or evaluating covenants not to compete. The courtroom of appeals does not take the say-so to opposite its prior decisions; just the Wisconsin Supreme Court has that power.²³ Therefore, the conflict between the decisions in Primal Railroad, Milosch, and Techworks makes the issue of unlimited customer-contact expect-back periods in covenants non to compete fertile ground for law evolution or description by the Wisconsin Supreme Court across the Star Straight court'southward implied approving of Milosch. The Key Railroad court's admitted confusion as to Guido'southward argument and the direct conflict between Key Railroad and Milosch each weaken the value of the unpublished Key Railroad decision if employers rely on it when negotiating, drafting, or evaluating covenants non to compete that contain similar language.²⁴

Lessons Learned from Central Railroad

The Key Railroad decision provides several cautionary lessons to employers and their counsel.

Wisconsin Law Regarding Restrictive Covenants is Nuanced and Complex. Employers should rely on experienced counsel to typhoon covenants not to compete, nonsolicitation agreements, and nondisclosure agreements. Counsel advising employers need to ensure they are up to date on the police force regarding restrictive covenants. Employers who draft their ain restrictive covenants or apply whatsoever one-size-fits-all agreement from the Internet gamble having the courts throw out the entire understanding, thereby allowing former employees to engage in unfair competition with impunity.²⁵

In-firm counsel for national corporations that utilise a standardized covenant not to compete with respect to Wisconsin employees should ensure that the covenant is modified to comply with Wisconsin law. Noncompliant covenants should be revised, but employers must ensure existing employees are given consideration beyond continued employment in exchange for executing the revised covenants.²⁶

Do Not Confuse the Court. The Key Railroad case stands every bit a practical reminder that necessary and reasonable protections can exist lost if the court is confused past one of the parties. Employers and employees should ane) know the constabulary; and two) conspicuously land both their positions and their supporting authority and then the courtroom demand non guess what the parties' positions are. Haste makes waste, and the Key Railroad case shows that any uncomplicated oversight in a brief, such as not addressing an opponent's argument or declining to cite a dispositive authority in the proper context and consequently confusing the court, tin can plough a deserved victory into a surprise defeat.

Half a Loaf is Improve than None. More often than not, covenants not to compete should bar former employees from competing for the business of the employer'due south contempo customers and those customers and prospects with whom the former employee recently dealt or about whom the employee learned information non publicly bachelor.²⁷ If properly challenged past an employee who cites the controlling case law, overbroad covenants with restrictions not reasonably necessary for the protection of the employer's legitimate protectable interests will be invalidated in total.²⁸

Employers, therefore, should err in favor of using less restrictive covenants not to compete. Doing so minimizes both the chance of the covenant beingness challenged in court and the risk of a judge throwing out all the restrictions and permitting former employees to openly compete for the employer's customers.

Endnotes

^ane See Key R.R. Dev. LLC v. Guido, No. 2011AP2073, 2012 WL 3176422 (Wis. Ct. App. Aug. vii, 2012) (unpublished opinion not citable per department 809.23(three)). The Key Railroad case involved several employees and a variety of legal issues. This assay focuses on the most interesting issue involving only one of the defendants. For a comprehensive overview of the facts and bug in the example, please refer to the courtroom's decision.

² Id. ¶¶ 14-16.

³ Star Directly Inc. v. Dal Pra, 2009 WI 76, ¶ twenty, 319 Wis. 2nd 274, 767 N.Westward.second 898.

^four Id. ¶¶ 20-21; Techworks LLC v. Wille, 2009 WI App 101, ¶¶ ix-14, 318 Wis. 2d 488, 770 N.W.second 727.

⁵ Meet, eastward.g., Star Direct, 2009 WI 76, ¶ 21, 319 Wis. 2nd 274.

⁶ Id. ¶ 65. Covenants not to compete incidental to the sale of a business interest, however, are not subject to the exacting scrutiny of Wis. Stat. department 103.465, and therefore courts go on to blue-pencil and enforce them to the extent they are reasonable. See, e.chiliad., Reiman Assocs. Inc. v. R/A Adver. Inc., 102 Wis. second 305, 309-ten, 306 Northward.W.2d 292 (Ct. App. 1981).

^vii Star Direct, 2009 WI 76, ¶¶ 65-78, 319 Wis. 2d 274.

⁸ See Equity Enters. Inc. v. Milosch, 2001 WI App 186, ¶ 15 due north.4, 247 Wis. 2d 172, 633 Northward.West.2nd 662.

⁹ Id.

¹⁰ Techworks, 2009 WI App 101, ¶ x, 318 Wis. second 488.

¹¹ Star Straight, 2009 WI 76, ¶¶ 40, 43-44, 319 Wis. 2nd 274.

¹² Resp't Response Br., Fundamental R.R., at 24.

¹³ Milosch, 2001 WI App 186, ¶ xv north.iv, 247 Wis. 2d 172.

¹⁴ Resp't Response Br., Key R.R., at 23.

¹⁵ Key R.R., No. 2011AP2073, ¶ 15 n.vii.

¹⁶ Id. ¶ 15.

¹⁷ Id.

¹⁸ Milosch, 2001 WI App 186, ¶ 15 n.4, 247 Wis. 2d 172.

¹⁹ Cardinal R.R. Dev., No. 2011AP2073, ¶ 16 (citing Charolais Breeding Ranches Ltd. v. FPC Secs. Corp., 90 Wis. 2d 97, 109, 279 N.W.2nd 493 (Ct. App. 1979) (deeming unrefuted arguments conceded)).

^twenty Id. ¶ 1.

²¹ Id. ¶ six.

²² Id. ¶¶ 20-25.

²³ Melt v. Cook, 208 Wis. 2d 166, 189, 560 N.W.2d 246 (1997).

²⁴ Because the unpublished Key Railroad decision was issued per curiam, Wis. Stat. section 809.23(3)(b) prohibits parties from citing it even as persuasive authorization during litigation or appeals. The real danger presented by Key Railroad, therefore, is its capacity to lull unwary employers or their counsel into drafting unenforceable restrictive covenants or overestimating the enforceability of covenants already in place.

²⁵ See, east.1000., Wis. Stat. § 103.465.

²⁶ See, e.one thousand., NBZ Inc. v. Pilarski, 185 Wis. 2d 827, 839, 520 N.W.2d 93 (Ct. App. 1994).

²⁷ See, eastward.yard., Star Direct, 2009 WI 76, ¶¶ 39, 41, 319 Wis. 2d 174.

²⁸ Id. ¶¶ xx-21; Wis. Stat. § 103.465.