The Non-Compete Revolution: What You Need to Know Before Signing Your Next Employment Contract
Non-compete agreements (commonly referred to in Wisconsin as restrictive covenants) have garnered the attention of the national news media in recent years, thanks in part to massive class-action lawsuits waged against sandwich chain Jimmy Johns and other well-known corporations. Jimmy Johns came under fire when it was alleged that their employment contracts contained a highly-restrictive, two-year non-compete provision. According to the Huffington Post, the Jimmy Johns clause stated that former employees shall not be employed in “any business which derives more than ten-percent of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches and which are located within three miles . . . of [a] Jimmy Johns Sandwich Shop.” Outcry over this provision has led to increased scrutiny of employment contracts across the spectrum.
The Jimmy Johns controversy documents the growing trend of non-compete agreements in entry and mid-level employment positions. While non-compete agreements were traditionally reserved solely for contracts involving the employ of high-level business executives and other sought-after professionals, that is no longer the case.
Wisconsin is an at-will employment state, meaning that an employer has the right to “discharge an employee for good cause, for no cause, or even for cause [that is] morally wrong, without being thereby guilty of legal wrong.” See Brockmeyer v. Dun & Bradstreet, 113 Wis.2d 561, 567 (1983). An employee retains the same rights of at-will termination. As such, many Wisconsin employers utilize non-compete agreements, or restrictive covenants, to safeguard against unfair business competition in the age of the mobile workforce. However, Wis. Stat. § 103.465 requires that these restrictions adhere to the standard of reasonableness.
In Runzheimer International v. Friedlen, the Wisconsin Supreme Court overruled prior precedent and held that an employer may require an existing at-will employee to sign a restrictive covenant as a condition of continued employment. 2005 WI 45 (2015). Prior Wisconsin law required that some sort of additional benefit be conferred to the employee in order for the restrictive covenant to have legal effect. See NBZ, Inc. v. Pilarski, 185 Wis.2d 827 (Ct. App. 1994). However, the Court in Runzheimer further stated that an employer who fires an employee shortly after signing a restrictive covenant may expose themselves to claims of fraudulent inducement or violations of good faith and fair dealing.
In order to avoid confusion and unnecessary legal exposure, employers and employees alike should seek the assistance of qualified legal counsel prior to engaging in contract negotiations for employment. John M. Kelly, Attorney at Law, LLC has 42 years of experience in the drafting, interpretation, negotiation, and enforcement of employment contracts. Call today to consult with a seasoned professional.