The WI Supreme Court’s Runzheimer Decision and its Effect on Employee Covenants Not to Compete
May 8th, 2015
Last week the Wisconsin Supreme Court released an important new decision concerning employee covenants not to compete, also referred to as non-compete agreements or covenants. Employee covenants not to compete are often used by businesses to prevent employees who have developed relationships with customers, received special training or other supportive resources from an employer, from leaving employment and taking those relationships and resources to the benefit of a competitor. In the past there was a concern that such a covenant would be enforceable only if it was supported by some special consideration, such as the initial hiring of the employee, a special pay increase, a bonus, or the like.
The case is Runzheimer International, Ltd. v David Friedlen, April 30, 2015 and can be found here. The Wisconsin Supreme Court determined that the covenant was enforceable with no consideration other than the employer’s promise not to terminate the long-term employee’s employment if he signed the contract which included the covenant. (The employer said it would terminate his employment if he did not sign.)
The court reasoned that this consideration was sufficient to make the contract enforceable. If the employer fired the employee immediately after signing the contract, the employer would be subject to breach of contract claims, based on the employer fraudulently inducing the signing of the contract or the employer’s failure to exercise good faith. Justice Abrahamson, separately concurring in the decision, said that she understood the decision to mean that an employer was prohibited from terminating an existing employee for a “reasonable period of time” after signing such a contract.
In this case the employee had been employed for 16 years before the contract with the non-compete was required. He was eventually fired two years after signing it. He then went to work for a competitor, contrary to the requirements of the non-compete. The original employer sued to enforce it and this decision is the result.
This is an important decision because it may give employers more freedom in requiring existing employees to sign non-compete covenants or in updating such covenants now in effect. Every non-compete agreement in Wisconsin must still meet the other legal standards of being reasonable in the period of time during which, and the geographic scope for which the covenant is effective, and otherwise going no further than necessary to protect the legitimate business interests of the employer. This can vary depending upon the facts of the case.
You may wish to consider whether your current non-compete agreements are adequate to protect your best interests and no more restrictive on the employee than necessary. If updating is required, now would be a good time to revise them. If you have questions about non-compete agreements please contact a member of the Stafford Rosenbaum Business Law team.
This publication is intended for general information purposes for the community and highlights recent changes and developments in the legal area. This publication does not constitute legal advice, and the reader should consult legal counsel to determine how this information applies to any specific situation.