Last fall [we are back after a long and busy winter] we touched on an issue important to employers and employees dealing with non-compete agreements. That issue was whether or not continued employment was sufficient consideration to support a covenant not to compete.
By way of background, there is a basic rule of contract law that requires an agreement to be supported by sufficient consideration to be binding. The idea of “consideration” refers, generally, to some legal benefit or something of value given in exchange for a promise to be bound by contract. In other words, the party agreeing to be bound by the restrictive covenant must receive something of value in exchange for doing so.
The Wisconsin Supreme Court recently answered “yes” in Runzheimer Int’l, Ltd.; v. Friedlen, 2015 WI 45 (2015). What does that mean for employers and employees?
Wisconsin employers now have maximum flexibility in terms of requiring existing employees to sign non-competes, or modifying those already in place. They need not offer a bonus, promotion or any other benefit as an incentive to execute new agreements. Whether or not doing so is a good business practice is another question of course. Not only could doing so harm employee morale but, based upon the Court’s ruling, employers may still be required to show that they stood ready and willing to actually terminate the employees refusing to sign. There is little question though that this recent ruling favored employers.
Employers should always periodically review the status of any non-competes that are in place and the process and procedures in place for requiring new employees to sign. Given the recent decision, now is a good time to undertake such a review.
What this decision might mean for employees will follow in a separate post. As is often the case with legal rulings, an answer concerning one issue raises questions regarding many others, and such was the case here.
If you have questions regarding the enforceability of a non-compete it is important to consult with legal counsel. Get the Primer on Non-Compete Agreements and Restrictive Covenants here. This Primer will help you to learn about the enforceability of non-compete agreements in Wisconsin and the important factors businesses and individuals must consider when dealing with restrictive covenants.