A recent legal opinion from a Texas Court of Appeals generated some legal buzz because of its ruling on the enforceability of a non-compete. The Court upheld a restrictive covenant even though the employee never actually physically signed the document.
In reaching its decision, the Court really touched on two important legal issues surrounding non-competes. We can use the Texas case to highlight those two interesting issues and evaluate whether or not the same thing could happen in Wisconsin.
The case is Cameron Int’l Corp. v. Guillory, 2014 Tex. App. LEXIS 10767, 9-11 (TX App., 1st Dt., 2014), and involved an employee of an oilfield service business that did not sign a non-compete at that time he began his employment with the company. A successful employee, he worked his way up through the ranks, and several years later he was awarded restricted stock in the company through a Restricted Stock Unit (RSU) Program. The RSU Program agreement contained a one-year non-compete and a provision indicating that Delaware law applied to the contract. The employee had worked in Louisiana, Wyoming and Colorado, but never lived or worked in Texas.
The employee never physically signed the restricted stock agreement or the non-compete. Instead, he was instructed to accept the award and enroll in the program online through E*Trade and etrade.com by filling out some electronic forms. The employee did so, and manifested his acceptance of the agreement, including the non-compete and choice of law terms by clicking on several “requires acceptance” buttons.
The employee left the company a few years later and went to work for a competitor. Cameron, his former employer, sought injunctive relief to enforce the non-compete in a Texas court where Cameron was headquartered. The trial court denied the injunction request and refused to enforce agreement indicating simply that the agreement was not binding under Texas law.
The Court of Appeals on the other hand found that the non-compete was enforceable. First, it found that Delaware rather than Texas law applied. Second, it said that because Delaware had adopted the Uniform Electronic Transactions Act the contract was enforceable because the employee had indicated his acceptance through electronic means.
How would things have ended up, everything else being the same, if the employer had been headquartered and filed suit in Wisconsin rather than Texas?
The first issue is whether or not Wisconsin or Delaware law would apply. The connection an employee has with Wisconsin is critical in that regard. One Wisconsin Court has refused to override a choice of law provision contained within a non-compete because the contract had been entered into outside of Wisconsin, the employee had worked outside of Wisconsin for many years, and had been here only three weeks before seeking the protection of Wisconsin law. So, it seems likely that a Court in Wisconsin would reach the same result as the Texas Court and apply Delaware law. That is, the agreement in question was entered into outside of Wisconsin, the employee worked outside of Wisconsin and had no connection to the State, so it is unlikely that a Court would override the parties’ choice of law.
Note that the employee’s relationship with Wisconsin is crucial. Had the employee lived and worked in Wisconsin it is likely that the choice of law provision would not have been honored, and the agreement would have been either enforced or not based upon Wisconsin law. The underlying idea is that Wisconsin law governing covenants not to compete is likely to express a sufficiently strong public policy to override the parties’ efforts to stipulate to the applicability of another state’s law. That is, Wisconsin may be viewed as having an overriding interest in protecting the employment relationships of those that live and work within the state. The counterargument is that there is a stronger interest in protecting the justified expectations of parties to a contract and Wisconsin should not disrupt orderly relationships and competition in the marketplace.
As to the secondary issue, Wisconsin adopted the Uniform Electronic Transactions Act in 2004 and is one of the 47 states recognizing that electronic transactions are the same as those that occur on paper. That law provides, with some exceptions, that an electronic record or an electronic signature satisfies any law requiring a record to be in writing or to contain a signature, and that an electronic record, electronic signature, or a contract cannot be denied legal effect simply because it is in electronic form. Thus, it is likely that clicking “accept” would be sufficiently binding in Wisconsin, even when it comes to restrictive covenants.
The facts of this case offer significant reminders to employers and employees alike. Employers should think carefully about the choice of law issue ahead of time and make sure it is properly addressed in any restrictive covenant agreement. Further, the issue should be reviewed periodically to make sure it accurately reflects the circumstances at hand. Employers should not assume that the choice of law provision it includes will automatically apply, particularly as things change over time. Employees should be careful to read what they are signing whether it is in electronic or paper form. Click through boxes can be legally binding.
Both employers and employees should enlist the help of competent legal counsel when it comes to non-compete provisions. There is too much at risk for both sides to leave much to chance. Get the Primer on Non-Compete Agreements and Restrictive Covenants in Wisconsin here to help you gain a better understanding of Wisconsin law.