In today's hyper-competitive business world many employers are utilizing non-compete agreements as part of the employment relationship. Employees, when confronted with these agreements are often uncertain as to what they mean and whether to sign them. To add to the discomfort that can accompany these agreements, in Wisconsin it has traditionally been a challenge to develop non-compete agreements that will withstand legal challenges. The end result is that employers are often uncertain about the enforceability of their agreements and employees are often uncomfortable with possible restrictions on their ability to earn a living if the employment relationship fails.
What Non-Competes Mean to Employees:
Employees need to take these agreements seriously. If drafted correctly they are binding and enforceable through the courts. Non-compete agreements can directly impact an individual's ability to earn a living.
Employees should have any non-compete reviewed by legal counsel of their choice
prior to signing it. This is more than a technicality. The law around these agreements continues to evolve and it behooves the employee to know whether the non-compete is likely enforceable. Also, by understanding the agreement, the employee may be able to negotiate better terms, such as smaller geographic areas and lesser time periods.
If an employee is being asked to sign a non-compete there also needs to be the proper consideration. If the non-compete is required at the time of employment, being hired is the consideration; if an existing employee is asked to sign a non-compete, the consideration could take the form of a promotion, increase in pay, or some other adequate consideration. The bottom line is that there needs to be adequate consideration for the promises contained in the non-compete.
What Non-Competes Mean to Employers:
Obviously, if properly drafted, non-competes can be an effective tool to protect a business from unfair competition. As stated above, enforcing a non-compete can at times be a problem. Courts are very concerned about limiting a person's ability to earn a living. There are those that consider non-compete agreements as being "disfavored" by some courts. However, whether disfavored or not, non-competes are legal in Wisconsin and can be enforced if properly drafted.
So what are some of the things court's look at when deciding if a non-compete will be upheld?
Time Period. The time period is the restrictive time period of the agreement. In other words, how long will the agreement restrict the person's ability work. Figuring out the appropriate time periods is not always easy to do. It will vary depending on the industry, profession, and type of job. Many consider two years to be a workable time period, however, such "rules of thumb" can be risky and each agreement needs to be tailored to the specific situation. It is probably fair to say that any time period over two years, though not specifically prohibited, will get intense review if challenged.
Geographical/Regional Restrictions. Non-competes not only limit how long an employee is prohibited from competing but typically the geographical region where there should be no competition by the employee. Again, what is appropriate is a very fact specific inquiry. This is truly a balancing act between whether the employee can reasonably work somewhere else and yet not harm the business. There is no pat answer.
Need for Protection. Another consideration is whether there is a need for protection by the employer. There should be a good reason for needing the non-compete agreement. Non-competes should not be used to harass or penalize employees that leave your business. They should not be overly oppressive or harsh.
More to Consider. Of course, these are only some of the considerations when deciding what to include in a non-compete; a complete discussion is beyond the scope of this blog entry. Employers should not only seek
legal counsel when initiating non-competes, but given the continuing evolution of the law in this area, existing non-competes should be periodically reviewed and updated.
Regardless of whether you are an employer or employee, you will want to seek competent legal advice to determine the appropriateness and enforceability of a non-compete agreement.