Authors: Attorney John C. Mitby, Attorney Andrew W. Erlandson, and Law Clerk Elizabeth L. Spencer
Phone: 608-575-4077
Email: jmitby@hbslawfirm.com
Wisconsin law generally disfavors the enforcement of restrictive covenants. However, there has been a trend in the opposite direction. Recently in BMO Harris Bank N.A. v. Lailer, No. 16-CV-545-JPS, 2016 WL 6155997 (E.D. Wis. Oct. 21, 2016), the court granted a preliminary injunction enforcing a non-solicitation clause. This is significant as it is difficult to obtain a preliminary injunction in these situations. This case is also unique as it involves an issue arising from an employment offer online as opposed to an offer via more traditional means.
A restrictive covenant is a provision in an employment agreement limiting an employee from engaging in certain business activities, in a region, for a period of time after terminating their employment with their current employer. Wisconsin Statute § 103.465 states that this type of covenant between an employer and employee to not compete is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. A covenant is illegal and entirely unenforceable if it violates the guidelines for region, time, or activities. The court has created a five part test to determine if a covenant is enforceable. The agreement must: 1) be necessary for the protection of the employer; 2) provide a reasonable time period; 3) cover a reasonable territory; 4) not be unreasonable to the employee; 5) not be unreasonable to the general public. Lakeside Oil Co. v. Slutsky, 8 Wis. 2d 157, 162 , 98 N.W.2d 415 (1959).
In BMO Harris Bank N.A. v. Lailer, BMO offered a job to an employee via an email requiring that the employee accept through an online acceptance process that required visiting a website with an acceptance portal. At this portal there were attachments including a non-solicitation provision. There was no evidence that the employee ever read the attachments. The employee argued that the provision was unenforceable as it was not presented to her and no “meeting of the minds” occurred. However, the court found to the contrary and stated that a failure to read a contract does not relieve an individual from contractual obligations.
Further, the restrictive covenant was enforceable. It was reasonable in time as it was limited to the final year of her employment and the year following termination. Second, it specified a certain clientele which was adequate in place of a region. The court agreed with BMO that a lack of a specified geographic territory limitation does not make a restraint invalid. The Wisconsin Supreme Court had previously stated that in certain situations a restriction on customers may be preferred as it more adequately approximates the area of the company’s vulnerability to unfair competition and does not deprive the former employee of legitimate opportunities to work. Rollins Burdick Hunter of Wisconsin, Inc. v. Hamilton,, 101 Wis.2d 460, 304 N.W.2d 752, 755-56 (1981). Ultimately, the court concluded that the restraint when expressed in the terms of a specific clientele was just as narrowly tailored as a geographic limit.
Finally, the court found that there was irreparable harm to BMO’s reputation as there was evidence of the employee contacting former clients praising her new employer. Money damages were deemed not suitable for BMO due to the difficulty involved in calculating money damages when reputational harm is at issue and because the damages would follow the conclusion of litigation when BMO may be unable to repair its customer relationships and public image.
While, historically, courts have not treated restrictive covenants favorably, BMO v. Lailer demonstrates the trend to protect them, the possibility that clientele limitations can replace geographic limitations and that new issues are arising from the changing nature of employment due to technology. Employees should always carefully review any documents provided prior to accepting new employment. Further, both employers and employees should consider consulting an attorney about the language of their covenants and the process by which they are communicated in order to ensure that the covenant complies with current law.
