By Oyvind Wistrom
The Wisconsin Supreme Court issued a landmark decision on Friday in the case of The Manitowoc Company, Inc. v. John Lanning, 2018 WI 6. The case represented the Court’s first opportunity to determine whether a Non-Solicitation of Employee (NSE) provision in a contract between an employer and an employee is governed by the same statute, Wis. Stat. § 103.465, that governs the enforceability of non-compete restrictive covenants. The majority of the Court concluded that NSE provisions are indeed governed by Wis. Stat. § 103.465, and then proceeded to find the NSE at issue overbroad and unenforceable because it restricted Lanning’s ability to engage in ordinary competition attendant to the free market.
The case involved the interpretation of a NSE provision signed by Lanning while he was previously employed by The Manitowoc Company, which prohibited him, for a period of two years following the termination of his employment, from soliciting, inducing or encouraging any employee of The Manitowoc Company to terminate his/her employment with The Manitowoc Company or to accept employment with a competitor, supplier or customer of The Manitowoc Company. After separating from The Manitowoc Company, Lanning accepted employment with SANY, a competitor of The Manitowoc Company’s crane division. It was alleged that he subsequently engaged in recruitment efforts in which he encouraged employees of The Manitowoc Company to accept employment with SANY.
The Circuit Court initially ruled in favor of The Manitowoc Company and awarded damages related to the alleged breach. The Wisconsin Court of Appeals reversed and ruled in favor of Lanning, finding the NSE provision unenforceable under Wis. Stat. § 103.465 because it was broader than reasonably necessary to protect a legitimate business interest of The Manitowoc Company. Specifically, the NSE was overbroad because it restricted Lanning from encouraging as many as 13,000 employees of The Manitowoc Company, many of whom worked in a different division of the company and with whom Lanning had no contact, to terminate their employment with The Manitowoc Company.
The majority of the Justices on the Wisconsin Supreme Court agreed and affirmed the decision of the Court of Appeals. In so doing, the Court first concluded that Wis. Stat. § 103.465 governed the enforceability of NSE provisions. The Court thus clarified that in order for a NSE provision to be enforceable under Wisconsin law, it must be (1) reasonably necessary for the protection of the employer; (2) provide a reasonable time period; (3) provide a reasonable territorial limit; (4) not be harsh or oppressive as to the employee; and (5) not be contrary to public policy. The lead opinion of the Court concluded that the NSE at issue was not reasonably necessary to protect a legitimate interest of The Manitowoc Company. In particular, as the restriction was worded, it prevented Lanning from encouraging any Manitowoc Company employee, no matter the employee’s job or location, to terminate his or her employment with Manitowoc for any reason, or soliciting any Manitowoc Company employee to take any position with any competitor, supplier or customer of The Manitowoc Company. Without a specified territory or class of employees, the provision restricted Lanning’s conduct with respect to all employees of The Manitowoc Company everywhere. The restriction was simply too broad for the Court to enforce.
The primary lesson to be learned from this case is that in order for a Non-Solicitation of Employee provision to be enforceable under Wisconsin law, the provision must be narrowly tailored to protect a legitimate business interest. An employer does not have a protectable interest in restricting competition of the type that an ordinary stranger can provide. For instance, while The Manitowoc Company’s NSE was extremely broad, a NSE that, for example, only prevents the recruitment or poaching of key employees with whom a former employee had contact for a specified period of time, may still be enforceable under Wisconsin law. Even such a restriction must still be drafted in such a way as to ensure it satisfies all five statutory requirements outlined above. Employers who utilize NSE provisions should review these provisions carefully with legal counsel to ensure they are compliant and enforceable under Wisconsin law.
For further information, or assistance in drafting or reviewing your restrictive covenants, please contact Attorney Oyvind Wistrom at (414) 273-3910 or via email at firstname.lastname@example.org. Mr. Wistrom was lead counsel in The Manitowoc Company case and successfully argued the case before the Wisconsin Supreme Court.