In The Manitowoc Company, Inc. v. Lanning, the Supreme Court of Wisconsin ruled that a non-solicitation of employees provision contained within an employment agreement was unreasonable and unenforceable under Wisconsin statute as overly broad.
Employee No-Solicits Are a Restraint on Trade Subject to Wisconsin Statute
John Lanning began working for the Manitowoc Company in 1985 as a chief engineer. The non-solicitation provision at issue was within an employment agreement that Lanning signed in 2008, after 23 years with the company. The provision stated that Lanning, for a period of two years following termination, could not solicit any current employee to leave the company or to accept employment with any competitor, supplier, or customer.
The Court began its analysis by finding that non-solicitation of employees agreements fall within the purview of Wisconsin Statute Section 103.456, entitled “Restrictive covenants in employment law.” The statute states that a “covenant not to compete” will be enforceable only if the restrictions “are reasonably necessary for the protection of the employer.”
Although not a “covenant not to compete” in the strict sense of the term, the Court noted that it had previously found other types of post-employment restrictions to be subject to the statue, including non-solicitation of customer agreements, confidentiality agreements, and no-hire provisions between employers. Regardless of what label is used, the applicability of the statute depends on whether the provision acts as a restraint of trade.
If the effect of the provision is to restrict competition or impose a burden on employees, then the provision is a restraint on trade and subject to the Wisconsin statute. Therefore, the labels used in employment agreements are not important, but if a provision prevents an employee from doing something or competing in some way, it will be considered a restraint on trade.
The Court found that the non-solicitation provision in Lanning’s employment agreement was a restraint on trade. The provision restrained trade by hindering the mobility of the company’s employees. An individual’s ability to make their own choices about their employment is a fundamental right. Preventing Lanning from informing his former colleagues of other employment opportunities limited the ability of the company’s employees to make their own decisions in regard to employment.
The Non-Solicitation Provision was Overly Broad
Having determined that the non-solicitation of employees provision was a restraint of trade, the Court turned to the question of whether the provision complied with the statute. Restraints on trade are disfavored at law in Wisconsin and in order for one to be enforceable it must meet five prerequisites. The restraint must:
(1) be necessary for the protection of the employer;
(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.
If a single one of these prerequisites is not met, then a restraint on trade will be unenforceable.
The Court found that the non-solicitation provision at issue in Lanning was unenforceable as overly broad and failed to meet even the first prerequisite required of restraints on trade in Wisconsin. The Court observed that the provision was nearly unlimited in scope. The provision was not limited to retaining top-level employees whose skills or special knowledge are hard to replace. The provision also did not tailor its language to focus on a subset of employees with sensitive information or specific skill sets, instead it prevented Lanning from encouraging any of the company’s 13,000 current employees to leave.
The employer urged the Court to allow enforcement because it was seeking to apply the restriction in a narrower situation than the plain language of the provision could cover. The Court rejected this request, noting that the statute was intended to prevent employers from drafting overly broad restrictions and enforcing them only to the extent reasonable.
In summary, the Court found that the provision prevented Lanning from encouraging any current employee to leave the company “for any reason, or to take any job with any competitor, supplier, or customer.” As such, the provision at issue within the employment agreement was not reasonably necessary for the protection of the employer and it was therefore an unreasonable restraint on trade unenforceable under the Wisconsin statute.
Chase M. Hundman is an associate at Howard & Howard’s Chicago office. He joined Howard & Howard in 2016, and concentrates his practice in commercial litigation.