The Wisconsin Supreme Court’s Message to Employers: “Revisit Your Employee Non-Solicitation Provisions Immediately!”
On January 19, 2018, the Wisconsin Supreme Court decided for the first time that employee non-solicitation provisions – contractual provisions that restrain current or former employees from soliciting other employees to separate from their employment – are subject to Wisconsin Statute § 103.465, Wisconsin’s law against unreasonable restraints of trade in the employment context. In addition, the Court struck down as improperly overbroad the particular non-solicitation provision at issue in the underlying action.
As described by the Supreme Court in Manitowoc Company, Inc. v. Lanning, 2018 WI 6, Manitowoc Company, a manufacturing business with two distinct divisions, sued John Lanning, a former employee of one of the company’s divisions, for breach of contract. In particular, Manitowoc accused Lanning of soliciting at least nine different company employees to leave the company and join him in working for his new employer in violation of the employee non-solicitation clause contained in Lanning’s employment contract. That clause provided, in relevant part, as follows:
I agree that during my Employment by Manitowoc and for a period of two years from the date my Employment by Manitowoc ends for any reason, including termination by Manitowoc with or without cause, I will not (either directly or indirectly) solicit, induce or encourage any employee(s) to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc.
The Supreme Court determined that the provision was overbroad and unenforceable because Manitowoc did not have a protectable interest justifying the restriction placed on Lanning. In so ruling, the Court observed that “[t]he plain language of Lanning’s non-solicitation of employees provision creates a sweeping prohibition that prevents Lanning from encouraging any Manitowoc Company employee, no matter the employee’s job or location, to terminate his or her employment with Manitowoc Company for any reason, or soliciting any Manitowoc Company employee to take any position with any competitor, supplier or customer of Manitowoc Company.” According to the Court, the restriction was also faulty because it contained “no limitations based upon the nature of the employee’s position” with the company, “based upon Lanning’s personal familiarity with or influence over a particular employee,” or “based upon the geographical location in which the employee works.” Nevertheless, despite invalidating this particular provision, the Court emphasized that employee non-solicitation provisions can be enforceable if drafted appropriately.
So, what could Manitowoc have done differently? With the benefit of hindsight, it could have, at a minimum, limited the restriction to other company employees who worked in the same manufacturing division as Lanning, and perhaps to management or supervisory-level personnel only. It also could have limited the restriction to cover only those employees that Lanning knew personally. In addition, the company could have constructed the provision to apply only with respect to employees who leave Manitowoc for a direct competitor, and only for the purpose of seeking certain higher-level positions with such a competitor, among many other possible considerations.
What should employers do now? I would strongly recommend that employers revisit and potentially redraft their employee non-solicitation provisions as soon as possible to ensure that they are in the best possible position to enforce those provisions under Wisconsin law.
If you have any questions regarding the enforceability of employee non-solicitation provisions or any other restrictive covenants, please feel free to contact me or any other member of DeWitt’s Employment Relations practice group.