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Is a Non-Solicit Clause Synonymous with a Non-Compete?


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8/23/2016
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At first blush, according to the Wisconsin Court of Appeals in its hot-off-the-presses decision in Manitowoc v. Lanning that was handed down on August 17, the answer appears to be yes.

But, as this article makes clear, this decision must be read in a broader context before even attempting to apply it in a different case.

The Wisconsin Statute

By way of background, the Wisconsin state statute (§ 103.465) governing non-compete agreements states as follows:

"A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint."

How Other Jurisdictions Generally View Non-Compete Clauses

That language is fairly consistent with how other jurisdictions, like New York (where my practice is located) generally read non-compete clauses, as these provisions are supposed to be read narrowly, and thereby limit the instances where an employer can prevent an employee from earning a living in their chosen field, where they have the most experience, and have the best chance to earn as much as possible.

Where the Wisconsin Court (Seemingly) Breaks Radically New Ground

Traditionally, most jurisdictions - even those that largely ban non-competes - have carved out exceptions that permitted employers to protect their goodwill, i.e., their customer base, as well as their employees from being solicited (or "poached") by departing employees.

The rationale for this is rather straightforward: 

Even if we're not going to prevent you from taking another, better-paying job in the same field and competing with your former employer, that doesn't mean the employee can unfairly poach the employer's client roster - which they expended time, money and effort to develop - or the employees that they trained.

Enter the Wisconsin Court of Appeals, who, in a radical departure, apparently stated that a non-solicit is, in effect, the same thing as a non-compete, stating:

“It is not a leap of logic to conclude that a provision aimed at restricting a former employee from ‘systematically poaching’ the valuable and talented employees of his former employer is a restraint of trade.”

But ... Does the Wisonsin Court of Appeals Really Go That Far?

A careful reading of the decision, however, suggests that the Court would not necessarily go that far if faced with another, more limited non-solicitation clause; they were clearly troubled by the incredible breadth of this restrictive covenant.

Consider the following language from the decision:

"Among its evident applications, the clause applies to [defendant]’s solicitation, inducement, or encouragement of “any employee”—a high-profile and skilled colleague to be sure, but also an entry-level factory worker, a salesperson working in the food service division (in which [defendant] never worked), and yes, even a part-time janitor at the Pennsylvania production facility. This restriction applies even if Lanning knows the employee exclusively through church or his local bowling league or his nephew’s baseball team. The restriction applies even if Lanning has never met, heard of, or interacted with the employee. These are not strained hypotheticals; they are the plain application of the words of the provision itself.

"The NSE provision also extends to contacts that seem loosely connected, if at all, to Manitowoc’s competitive interests. It restricts Lanning from encouraging a Manitowoc friend to take a job with a noncompetitive employer simply because that employer happens to be a Manitowoc customer. This provision would seemingly prohibit Lanning from serving as a job reference for a former colleague who applies to work for a competitor, supplier, or customer of Manitowoc, or maybe who seeks to change industries altogether. The restriction even prohibits Lanning from encouraging a former colleague and friend to retire (“terminate their employment with Manitowoc”) to spend more time with his family."

What the Wisonsin's Court Decision Ultimately Turned Upon

Ultimately,  I think the following language - rather than the (alarming to employers) quotation equating non-solicits with non-competes - makes clear that the plaintiff's gross over-reaching was the determining factor in this particular case:

"Manitowoc’s stated interest—protecting itself from Lanning’s specialized knowledge of its talent base and his relationships with employees— does not justify the broad ban on the solicitation, inducement, or encouragement of any employee. Manitowoc is a large company with two divisions. Lanning worked in the crane division; his expertise and connections would not extend to all of Manitowoc’s employees. With respect to at least some of Manitowoc’s employees, Lanning posed no greater threat to Manitowoc than any other competitor or employer."

***

"Manitowoc has offered no reason why it needs protection from the solicitation of employees to work for businesses that do not compete with it or in positions that do not pose a unique competitive risk ... 

"Because the NSE provision is not justified by a protectable interest, we need not analyze the remaining factors necessary to uphold a restrictive covenant. Accordingly, the NSE provision is contrary to WIS. STAT. § 103.465 and unenforceable."

The Takeaway

While the decision is not as revolutionary as it may first seem to be, it does definitely break some new ground, in that this court held that there are certain circumstances where a grossly overbroad non-solicit is deemed tantamount to a non-compete, and will be unenforceable as a matter of law.

 



Category: Non-Compete & Employment Agreements


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