When an employer asks an existing employee to sign a non-compete agreement, Wisconsin law requires the employer to offer some sort of “consideration,” or valuable item or action, in exchange. The Wisconsin Court of Appeals recently asked the Wisconsin Supreme Court to decide whether continued employment, in and of itself, is sufficient consideration when asking an employee to sign a non-compete agreement. If the Court decides continuing employment is indeed sufficient consideration for a non-compete agreement, the decision will enable many employers to request and/or adjust non-compete contracts with their current employees.
Employers regularly require their employees to sign non-compete agreements to limit the scope of employees’ work after they leave employment. As the State Legislature has declared, such agreements may be necessary to “protect” the employer from departing employees’ use of trade secrets or other confidential information.
Non-compete agreements, like all valid and enforceable contracts, must be supported by consideration. That is, the employee must receive something valuable in return for agreeing not to compete with the employer after he or she leaves employment. Recently, the Wisconsin Court of Appeals was faced with the question of whether a non-compete agreement presented to an employee without any additional consideration, is enforceable under Wisconsin law. In that case, David Friedlin worked for Runzheimer International, Ltd., for nearly twenty years before Runzheimer presented him with a non-compete agreement. The agreement presented no additional consideration beyond the opportunity to remain employed by Runzheimer. Friedlin signed the agreement, and was subsequently fired by Runzheimer two years later.
The Court of Appeals distinguished the following situations from the one presented in Friedlin’s case:
• An employer may require new employees to sign non-compete agreements even if only supported by employment as consideration;
• An employer may not require existing employees to sign non-compete agreements unless the employer provides additional consideration;
In Friedlin’s case, the employer did condition continued employment on Friedlin’s assent to the non-compete agreement. Runzheimer argues continued employment was adequate consideration, and that the non-compete agreement should be enforced.
The Court of Appeals decided this specific situation has not yet been addressed by the Wisconsin Supreme Court. Runzheimer argued Wisconsin should adopt a rule allowing the opportunity for continued work to comprise adequate consideration and suggested Wisconsin “follow the lead” of other jurisdictions that allow continued employment to comprise adequate consideration if the employee remains employed for a “substantial period” after signing the agreement.1 The Court of Appeals declined to modify Wisconsin law in such a way, but the Supreme Court may make the final decision on these issues.
If you have signed a non-compete agreement, or you are asked to sign one, make sure the agreement includes reasonable consideration. If you uncertain or doubtful about the consideration in a non-compete agreement, please contact the attorneys at Hawks Quindel to discuss your situation.
1 See, Attorney Katherine Charlton’s discussion of this issue here: https://www.hq-law.com/blog/Employment-Law/length-of-employment-may-affect-whether-a-non-compete-agreement-is-enforceable.html
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