Let’s pretend that I am the owner of a hair salon. I want to keep my clients even as different hairdressers come and go. One problem though: My clients build a relationship with a hairdresser, and when he leaves to go to another salon, my clients follow. What to do? One answer might be a non-compete agreement.
Non-compete agreements restrict actions of ex-employees after they leave employment of a business. They are used to help companies recoup costs, prevent spread of confidential information, and stymie competition, but must be narrowly tailored to be enforces. These contracts are disfavored in many states, including Wisconsin.
In Wisconsin, restrictive covenants in employment contracts is controlled by Sec. 103.465, Wis. Stat., which states, “A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.”
For a restrictive covenant to be enforceable, the agreement must:
- be necessary for the protection of the employer;
- provide a reasonable time period;
- cover a reasonable territory;
- not be unreasonable to the employee; and
- not be unreasonable to the general public.
If any portion of the restrictive covenant fails to satisfy the factors given above, the entire covenant is unenforceable. The employer, not the employee, bears the burden of showing that the restriction is reasonable.
OK…so I can restrict my ex-employee, but I have to be reasonable. Makes sense. But what is reasonable?
In totally court-worthy language, “the reasonableness of a covenant is a fact-specific inquiry depending on the totality of the circumstances.” In other words, it depends on the industry, the job, and all the other things that make life interesting.
As for my hair salon, it is probably not reasonable for me to say that a hairdresser cannot cut hair at any salon within 100 miles of my salon for 5 years. That time frame seems way too long, and the territory way to wide to protect me from losing my clients. For example, an average client of a hair salon probably doesn’t even drive 20 miles let alone 100. So a much smaller radius could still protect my interest AND let the hair dresser continue to live and work without having a commute involving an airplane. Each salon may choose different parameters. I may think 6 months is long enough, whereas someone else thinks a year is necessary . But one thing is for certain, unless you are Rapunzel, you will need a haircut much, much sooner than 5 years.
Therefore, it is important to figure out what I truly need to protect myself but not be unreasonable to the employee. Courts don’t like putting people out of work. So don’t be the bad witch who locks their employees up in a tower, but rather maybe just put some hurdles and hedges up to slow the travels instead.