By Anthony J. Steffek
The Wisconsin Supreme Court has issued its decision in Manitowoc Company, Inc. v. Lanning, 2018 WI 6, a highly anticipated ruling focusing on the enforceability of non-solicitation agreements between Wisconsin employers and employees. This decision should prompt a review of your non-solicitation agreements to ensure they comport with this newly issued guidance.
In the employment context, non-solicitation agreements include contracts that preclude an employee from soliciting other employees to leave the employer’s company. Manitowoc Company had entered into such an agreement with John Lanning, a long-time, high-level employee in its crane division. This non-solicitation agreement specifically precluded Mr. Lanning from soliciting, inducing or encouraging any employee(s) to terminate their employment with Manitowoc Company for any reason. This clause became particularly important to Manitowoc Company when Mr. Lanning left Manitowoc Company to work for a direct competitor and, allegedly, interacted with several Manitowoc Company employees thereafter.
Manitowoc Company sued Mr. Lanning over this alleged conduct, winning at the trial court level (and receiving a large monetary award in the process). The Wisconsin Court of Appeals reversed the trial court, however, holding that: (a) the non-solicitation agreement was subject to Wis. Stat. § 103.465, which governs restrictive covenants in employment contracts; and (b) when analyzed under that statute, the agreement between Manitowoc Company and Mr. Lanning was unenforceable.
The Wisconsin Supreme Court agreed. It clarified that Wis. Stat. § 103.465 does not only apply to the “textbook example” of a noncompetition agreement but, rather, applies to any agreement that restricts competition in some manner – here, the restriction of Mr. Lanning and other Manitowoc Company employees “from freely competing against Manitowoc Company in the labor market by insulating any Manitowoc Company employee from [Mr.] Lanning’s solicitations.”
Finding that Wis. Stat. § 103.465 applied to the subject non-solicitation agreement, the Supreme Court turned its attention to the matter of the agreement’s enforceability. After explaining the requirements for enforceability of restrictive covenants under the statute, the Supreme Court found the subject agreement unenforceable, particularly due to its use of the term “any.” By restricting Mr. Lanning from soliciting any of Manitowoc Company’s 13,000 employees – not just employees with whom he directly worked, employees with critical or sensitive information, etc. – the agreement was not reasonably necessary for Manitowoc Company’s protection. In doing so, the Supreme Court rejected the argument that the agreement should survive simply because Manitowoc Company’s enforcement intentions were narrower than the agreement itself.
This decision is now the controlling authority on the enforceability of non-solicitation agreements between Wisconsin employers and employees. Such agreements should be reviewed in light of this decision to determine whether they should be revised in order to increase the probability of their enforcement. Importantly, this decision does not deem all non-solicitation agreements unenforceable, but emphasizes the need for careful analysis and drafting to maximize protections while remaining enforceable in light of Manitowoc.
If you have any questions regarding this article, please contact your Davis & Kuelthau attorney, the author noted above or our Labor and Employment practice chair linked here.