The Wisconsin Supreme Court recently considered the question of what consideration must be offered by an employer who desires that a current ‘at-will’ employee sign a non-competition restriction. In Runzheimer Int’l Ltd. V. Friedlin, 362 Wis.2d 100, 862 NW2d 879 (Wis. 2015), the employee had worked for his employer for over 15 years when the employer approached him to sign a non-compete. He was given 2 weeks to consider the document after which he had to either sign it or be fired. He signed it and continued to work for an additional 29 months, at which point his employment was terminated.
When Mr. Friedlin went to work for a competitor, his former employer sued to enforce the non-compete. The employee countered that the document was unenforceable because it was not supported by adequate consideration. The circuit court agreed, ruling that because the employment was ‘at-will’, the employer’s offer not to fire him if he signed the non-compete was illusory since the employer retained the right to fire in any event.
On appeal, the supreme court stated that a non-compete signed by an existing at-will employee is not enforceable if the employer fails to do or offer something in exchange. Considering the facts in this case, the court concluded that the promise not to fire the employee in exchange for his acceptance of the non-compete was a ‘real’ exchange of promises, not illusory, and therefore enforceable. The fact that the promise not to fire was for an unspecified period of time “did not matter,” according to the court.
Employers should note, however, that legal principles of good faith and fraudulent inducement would prohibit an employer from using this ruling to extract a non-compete from an employee while harboring designs on pushing that employee out soon thereafter. One justice, in a concurring decision, stated that an employer who asks for a non-compete in exchange for continued employment essentially converts the ‘at-will’ employment into an employment contract for a “reasonable period of time” following signing of the non-compete. Apparently, in this case, 29 months was a sufficiently reasonable period of time.
Employers wishing to secure non-competition restrictions from current or future employees, or seeking to enforce or interpret existing non-compete agreements, should consult with an experienced business attorney, like those at Bosshard | Parke Ltd.