Non-Disclosure Clauses in Employment Agreements Held Void Under Wisconsin Law for Lack of Time Limitations

Non-Compete, Nondisclosure, Trade Secrets, Wisconsin, Confidential Information

It is well-settled that a non-compete must include a reasonable time limitation in order to be enforceable. Most employers understand this requirement and limit the duration of the their non-competes (and non-solicits) to 2 years or less.

But what about confidentiality/non-disclosure provisions in employment agreements? Must they also contain time limitations?

The answer appears to be “yes,” at least under Wisconsin law. Two recent federal court decisions found non-disclosure provisions invalid under Wisconsin’s non-compete statute because the provisions lacked time limitations.

The Employers Used Broad Non-Disclosure Clauses Without Any Time Limits

The non-disclosure provisions in the two cases were similar and are typical of the non-disclosure provisions used by most employers.

  • The provision in Staffworks[1] provided that the employee “will not (1) take, retain, or use Information or Staffwork’s materials for Employee’s own benefit or (2) disclose Information to any other entity except in a manner consistent with Staffwork’s policies.” Information was defined as “information or materials that are considered trade secret, confidential and/or proprietary by Staffworks, including the development and provision of unique products and services.”
  • The provision in Danaher Corp.[2] specified that the employee agreed that “during and after my employment, I will not directly or indirectly utilize or disclose to anyone outside of the Company trade secrets or other confidential information of the Company. . . . Examples of confidential information include, but are not limited to, customer and supplier lists, pricing, margins, business and marketing plans and strategy, technical know-how, formulae, processes, designs, manufacturing techniques and software.”

Most importantly, neither provision contained any type of time limitation on the employee’s obligation not to disclose confidential information.

The Absence of Time Limits Means the Provisions Are Unenforceable

The employees in both cases defended against their former employer’s claim for breach of the non-disclosure provisions on the grounds that the provision was unenforceable under Wisconsin’s non-compete statute. The Wisconsin statute provides that a covenant not to compete “during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer….” Wis. Stat. §103.465.

Finding that the Wisconsin statute applied to non-disclosure provisions imposed on employees, both courts found the non-disclosure provisions at issue to be unenforceable because they lacked any sort of time limit. As the court in Staffworks stated, “There is no reason to protect sales and customer information indefinitely, and the effort to do so renders the provision void.…”

The courts found other faults in the non-disclosure provisions. The court in Staffworks noted that the non-disclosure clause was not limited to trade secret type information. The Dahaher Corp. court also relied on the lack of a geographic restriction in voiding the non-disclosure provision in that case.

Time for a Rethink of Non-Disclosure Clauses?

The non-disclosure provisions in these cases are hardly unique. Most non-disclosure provisions used by employers are similarly broad and lack any sort of time limitation. And indeed it isn’t clear at first blush why an employee should ever be able to use or disclose his or her former employer’s confidential information.

But it may be time for a rethink. While the enforceability of non-disclosure provisions are usually not subject to serious challenge in the rush of a TRO hearing, courts are increasingly applying the same scrutiny to non-disclosure provisions as they do to non-competes and non-solicits. Wisconsin is an outlier now, but possibly not for long.

Although it may feel wrong at first to place a time limitation on non-disclosure clause, most employers have little to fear from such a change. The key period of time is generally the year after the employee resigns. So long as the non-disclosure provision covers this critical period, the employer should be adequately protected.

[1] Staffworks Group-Wisconsin Inc. v. Service First Staffing Inc., 2020 US Dist. Lexis 112666 (E.D. Wis. 2020).

[2] Danaher Corp. v. Lean Focus, LLC, 2020 US Dist. Lexis 131100 (W.D. Wis. 2020).

James L. Komie is an attorney with Howard & Howard in Chicago, IL. He regularly writes and speaks on new developments and trends in the law regarding non-competes and trade secrets, as well as issues relating to the financial services industry.

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