Legal Update: Non-solicitation

On January 19, 2018, the Wisconsin Supreme Court issued a decision, which further extends the restrictions on non-compete agreements, set forth in Wis. Stat. § 103.465. The Court determined in The Manitowoc Company, Inc. v. John M. Lanning that the restrictions that apply to traditional non-compete agreements, which restrict an employees/former employees ability to seek employment with a competitor, now apply to non-solicitation agreements, which prevent employees from poaching other employees from their employer/former employer.

At issue in Manitowoc Company v. Lanning was the enforceability of a non-solicitation provision present in Lanning’s employment agreement with Manitowoc Company, which prohibited him, for two years following termination of his employment, from soliciting, inducing, or encouraging any Manitowoc Company employee to terminate his or her employment with Manitowoc Company or to accept employment with a competitors, supplier, or customer of Manitowoc Company. In finding the non-solicitation unenforceable the Court answered the following two questions:

1. Does Wis. Stat. § 103.465, which explicitly refers to a “covenant not to compete,” apply to the non-solicitation of employees provision prohibiting Lanning form soliciting, inducing, or encouraging any employee of Manitowoc Company to terminate his or her employment with Manitowoc Company or to accept employment with a competitor, supplier, or customer of Manitowoc Company?

2. If Wis. Stat. § 103.465 governs Lanning’s non-solicitation of employees provision, is the provision enforceable under § 103.465?

In answering the first question, the Supreme Court determined that the non-solicitation of employees provision in Lanning’s employment agreement is a restraint of trade subject to the restrictions of Section 103.465. Specifically, the Court found that the non-solicitation of employees provision restricted “Lanning’s ability to engage in the ordinary competition attendant to a free market, specifically by restricting Lanning from “freely competing for the best talent in the labor pool,” and “affect[ed] access to the labor pool by a competitor of Manitowoc Company (including Lanning’s current employer, SANY America).” The Court stated that the provision “restricts Lanning (and any employee of Manitowoc Company) from freely competing against Manitowoc Company in the labor market by insulating any Manitowoc Company employee from Lanning’s solicitations,” and therefore, the provision was a restraint on trade subject to Section 103.465.

After finding that Section 103.465 applied to the non-solicitation provision the Lanning Court went on to analyze whether the provision met the requirements of Section 103.465. Under Section 103.465, for a restraint to be enforceable it must:

(1) be necessary for the protection of the employer, that is, the employer must have a protectable interest justifying the restriction imposed on the activity of the employee;
(2) provide a reasonable time limit;
(3) provide a reasonable territorial limit;
(4) not be harsh or oppressive as to the employee; and
(5) not be contrary to public policy.

When assessing these factors in Manitowoc Company v. Lanning, the Court paid specific attention to the fact that the non-solicitation provision restricted Lanning from soliciting “any employee” of Manitowoc Company. The Court found this to mean that Lanning was restricted from soliciting every one of Manitowoc Company’s 13,000 world-wide employees. The Court was critical of the fact that the restriction of the non-solicitation provision was not limited upon the nature of the employee’s position within the company, Lanning’s personal familiarity with or influence over a particular employee or class of employees, or by geographical location. The Court stated that such a restriction that prevents Lanning from soliciting all Manitowoc Company employees was overly broad and not reasonably necessary for the protection of Manitowoc Company, and was therefore, unenforceable under Section 103.465.

The Wisconsin Supreme Court’s decision in Manitowoc Company v. Lanning adds non-solicitation agreements to the list of restrictive covenants that are subject to the limitations of Wis. Stat. § 103.465. In light of the Lanning decision, Wisconsin employers should review, and revise if appropriate, any non-solicitation provisions in their employee contracts to abide by the restrictions of Wis. Stat. § 103.465 to maximize their enforceability in Wisconsin.