Wisconsin Supreme Court Provides New Guidance Regarding Non-Compete Agreement

May 1, 2015

On April 30, the Wisconsin Supreme Court issued a very important decision concerning non-compete agreements (and other similar types of employment restrictive covenants) that will have a significant effect on employers and their at-will employees across the State. In the case of Runzheimer International, Ltd.,v. David Friedlen, et al, 2015 WI 45 (case no. 2013AP1392), the Wisconsin Supreme Court took up the question of whether an employer could require an at-will employee to sign a non-compete without having to give that employee any “consideration” beyond continued employment with the company.

Prior court decisions had generally held that in order for a non-compete to be enforceable, the employee must be given something of value in exchange for signing the non-compete. In other words, simply agreeing to continue to allow the employee to work for the company in exchange for the employee signing the agreement was not adequate consideration, because the employer was not really giving anything up.

In the Runzheimer decision, the Supreme Court ruled that an employer may require an at-will employee to sign a non-compete in exchange for ongoing employment, concluding that the employer’s “forbearance of its right to terminate an existing at-will employee [. . .] constitutes lawful consideration.”

The chief argument in opposition to the Court’s position was the concern that under the Supreme Court’s approach, an employer could require an at-will employee to enter into a non-compete, then terminate that employee the very next day, leaving the employee without a job and bound to the terms of the non-compete.

Conceding that less-than-scrupulous employers might utilize this tactic, the Supreme Court nonetheless concluded that at-will employees who fell victim to this sort of conduct already had remedies under contract law, namely claims for fraudulent inducement and breach of good faith and fair dealing.

Interestingly, all but one of the Supreme Court Justices joined in the opinion. The only holdout was Justice Shirley Abrahamson, who issued a separate, concurring opinion. The Supreme Court’s decision, coupled with pending legislation (2015 Senate Bill 69) that would significantly alter the rules governing a trial court’s ability to modify the actual terms of a non-compete in order to make the covenant “reasonable,” demonstrate a changing landscape in this oftentimes contentious area of the law.

Whether you are an at-will employee or a business owner, the business attorneys at Menn Law Firm, Ltd., are here to provide you with whatever guidance you may need concerning non-compete agreements or other types of employment-related restrictive covenants.  For further information on this topic, please contact Atty Will McKinley at William-McKinley@mennlaw.com.  All of Menn’s attorneys may be reached at (920) 731-6631.