Non-Compete Agreements Must Be Limited To Be Enforceable

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January 9, 2001

A noncompete provision prohibits an individual from competing against the individual’s employer or former employer during his or her employment and after the employment relationship has ended.
Wisconsin has adopted a law which addresses the legality of noncompete provisions. Section 103.465 of the Wisconsin Statutes states that a provision prohibiting an individual from competing with the individual’s employer or former employer within a specified area and during a specified time is lawful and enforceable only if the restrictions are reasonably necessary for the employer’s protection. A provision imposing an unreasonable restraint is illegal and void. Wisconsin courts have generally interpreted the statutory provisions to mean that restrictions within a noncompete provision cannot be overly broad and must be limited to that necessary to protect an employer’s legitimate business interests.
The Wisconsin Court of Appeals reviewed a noncompete provision in a case entitled Mutual Service Casualty Insurance Company v. Brass. In this case, an employee worked as an insurance agent for an insurance company. When the employee’s employment was terminated, the employee agreed to a noncompete provision in return for severance pay.
The noncompete provision prohibited the employee from: (1) attempting to induce any of the company’s policyholders to lapse, cancel, or replace any insurance contract in force with the company following the termination of his employment; (2) attempting to induce any policyholder of the company credited to his account to lapse, surrender, or cancel any insurance coverage, or to solicit any such policyholder to purchase insurance coverage elsewhere; and (3) being employed in almost any capacity by a specific competitor for a three-year period.
The Court found the noncompete provision overly broad and therefore in violation of Wisconsin law for number of reasons. First, the noncompete provision prohibited the employee from soliciting any of his former employer’s policyholders no matter where in the world they were located. Second, there was no specific time limitation regarding the company’s right to terminate the employee’s severance pay if he attempted to induce a policyholder to cancel their coverage with the company. Third, the noncompete provision prohibited the employee from accepting any type of employment with the company’s competitor including, for example, as a janitor.
In light of the Court of Appeals’ ruling in Mutual Service Casualty Insurance case, employers must be careful to narrowly draft any noncompete provisions or other restrictive provisions to better ensure their enforceability.
If you have questions regarding the above, please contact any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.

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