Monday, March 30, 2015

What's Driving Wisconsin Senate Bill 69?

Wisconsin long has been a red-flag state for employers. For many years, attorneys have struggled with how to enforce non-compete agreements against Wisconsin employees. This past year, the Supreme Court of Wisconsin has considered whether continued employment constitutes sufficient consideration for an at-will employee's non-compete, joining a growing number of states that are reevaluating this important issue.

Wisconsin Senate Bill 69 is somewhat out of left field and comes at a time when the state's highest court is reviewing the consideration question. A summary and text of the proposed law is linked here.

The proposed law appears to draw from a number different legislative enactments and proposals to make Wisconsin far more friendly to enforcement. The law is not as long as Florida's over-lawyered statute, but it's still pretty wordy.

A couple of key, notable provisions of the law include:

  1. Continued employment would constitute sufficient consideration for a non-compete, which would resolve (at least going forward) the Runzheimer case currently pending before the Supreme Court. If this is the sole basis for consideration, the employee must receive a "rate of pay and benefits that is equal to or greater" than that which pre-dated the non-compete. Generous.
  2. A court must modify an overbroad restraint and "grant only such relief as is reasonably necessary to protect" an asserted legitimate business interest. This would shift Wisconsin from a state that will not modify covenants to one that must modify them. Major shift in policy.
  3. When assessing reasonableness, a court must consider "evidence of common practice with respect to the duration, scope, and nature of restraints in the specific industry of the person seeking enforcement" of the non-compete. Alternatively known as the "Expert Witness Full Employment Act of 2015," this should add another layer of complexity and cost to what should be a fast-paced, efficient procedure. The mandatory nature of the rule is particularly striking and without precedent.
  4. A court must presume that a non-compete of 6 months or less is reasonable, while one 2 years or longer is unreasonable. This is a sensible rule that seems to follow a popular trend.
  5. In considering whether to enforce a restrictive covenant, a court cannot consider individualized economic or other hardship that may result from enforcement "unless that person shows that exceptional personal circumstances exist." In other words, the section is meaningless.
  6. A court cannot narrowly construe a non-compete against the party who drafts it, and "shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests" established by the party seeking enforcement. The narrow construction rule is a perfectly sensible device that requires an employer to provide clear guidance and avoid the uncertainty associated with dense, vague language - hallmarks of non-compete disputes.
  7. Courts must enforce attorneys' fees clauses, and "may award costs and attorneys' fees to the prevailing party" in the absence of a contractual restriction. The statute does not provide any guidance here, so a court has unvarnished discretion to rule. This could help deter truly meritless suits.
The statute contains other nits, but these seven changes stood out as stark and marked departures from existing law. Senator Paul Farrow, a Republican leader in the State Senate and a small business owner, introduced the bill. 

No comments:

Post a Comment