Non-Compete Agreements: Just Because It’s in a Contract Doesn’t Mean It’s Legal

Employers are increasingly requiring their employees to sign contracts that include provisions restricting the employees’ rights after leaving the job. The most common such agreements are non-compete agreements that prohibit employees from working for competitors of their former employers.

According to a recent survey by the Economic Policy Institute, nearly half of American employers require at least some of their workers to sign non-compete agreements, and nearly a third of the employers required all of their workers to do so—regardless of the workers’ responsibilities, titles, or pay rates.

Wisconsin Limits Non-Compete Agreements

Wisconsin law prohibits courts from enforcing non-compete agreements in certain situations. So even if you’ve signed a contract that includes a non-compete agreement, your employer may not be able to enforce it against you in court. But that doesn’t stop employers from trying to go beyond what the law allows.

For example, California prohibits courts from enforcing almost all non-compete agreements. But the Economic Policy Institute estimates that nearly half of California employers require some or all employees to sign non-competes—even though most of them are legally unenforceable.

The same is true of Wisconsin non-compete agreements. Although Wisconsin has looser restrictions on non-compete agreements than California does, Wisconsin law provides workers key protections from unreasonable non-compete agreements. And just as in California, Wisconsin employers frequently require employees to sign non-compete agreements that are too harsh for a court to enforce. If you don’t know your employment rights, then it’s easier for your employer to threaten you with an unenforceable non-compete agreement.

This article includes some key information about the laws governing non-compete agreements in Wisconsin and some practical tips for dealing with non-compete agreements both during and after your employment.

Five Requirements for Non-Compete Agreements in Wisconsin

Under Wisconsin law, a court will not enforce a non-compete agreement unless it meets five requirements. If a non-compete agreement does not meet every one of these requirements, a court cannot enforce any provision of the agreement against the employee.

1. The non-compete agreement must be necessary for the employer’s protection.

In other words, the agreement must be aimed at protecting the employer against an important, protectable interest. This interest must be more than just the employer’s desire to retain its employees or its desire to not have to find and train replacement workers.
For example, an employer may have an important, protectable interest in preventing an employee with knowledge of trade secrets from going to a competitor. And it may have an important, protectable interest in preventing an employee with close relationships to key customers from going to a competitor.

2. The non-compete agreement must end after a reasonable time period.

A non-compete agreement that lasts for six months will almost certainly satisfy this requirement. But a court will probably conclude that an agreement lasting for three years does not have a reasonable time period. For periods in between, a court will consider whether the time period is reasonable under your specific circumstances.

3. The non-compete agreement must have a reasonable territorial limit.

Sometimes this limitation is expressed in geographic terms. An agreement with a relatively small geographic scope, such as barring working for any competitor within a ten-mile radius of the former employer, would likely be considered reasonable. But a non-compete agreement cannot reasonably bar an employee from working for any competitor in the country, or even in a large portion of the state.

This limitation is increasingly expressed not in terms of geography, but of customer contacts. For example, courts often uphold agreements that bar employees from soliciting any customers of their former employer that the employees had personal contact with, regardless of where the employee or customer is located.

4. The non-compete agreement must not have a harsh or oppressive effect on the employee.

Courts examine non-compete agreements to make sure that they don’t unfairly restrict employees’ ability to practice their professions.

5. The non-compete agreement must not be contrary to public policy.

Courts rarely examine this requirement in detail, but if a court concluded that a non-compete agreement might lead to a shortage of workers in a particular field, unreasonably stifle competition, or create a monopoly, that could be grounds for refusing to enforce the agreement.

What if Your Employer Asks You to Sign a Non-Compete Agreement?

Under Wisconsin law, your employer can require you to sign a non-compete agreement as part of your job, whether you are a new hire or have been working there for years. But you can try to negotiate more favorable terms, such as a shorter period of time for the agreement, fewer restrictions on what types of employment are prohibited, or removal of a particularly severe penalty.

In such a situation, it can be helpful to consult with an employment attorney experienced with Wisconsin non-compete agreements for advice and strategy on what to ask for and how to ask for it. Getting good advice when you are negotiating the terms of a non-compete agreement can save you a lot of time, money, and headaches down the road.

What if Your Employer Tries to Enforce a Non-Compete Agreement?

If you signed a non-compete agreement with your former employer, then left your old job for a new one, your former employer may try to use the non-compete agreement against you. Your former employer might start by sending you a letter reminding you of the terms of your non-compete agreement and threatening you with a lawsuit unless you quit your new job. Or your former employer might simply file a lawsuit, asking the court to order you to quit your new job (an “injunction”), to order you to pay money to your former employer (“damages”), or both. And depending on the language of your non-compete agreement, the employer might also ask the court to order you to pay a fixed amount of money stated in the agreement (known as “liquidated damages”) or to pay the employer’s attorney’s fees.

If your former employer is threatening litigation, it’s important to understand the risks you face. An attorney with experience interpreting and applying non-compete agreements can help you do so.

A Hawks Quindel Attorney Can Help You Understand Your Rights

The attorneys at Hawks Quindel, S.C. have extensive experience helping employees understand and enforce their legal rights, including under non-compete agreements. If you are being asked to sign a non-compete agreement or are being threatened with legal action under one, contact Hawks Quindel, S.C. to schedule a consultation with one of our experienced employment attorneys.