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Businesses: do you use non-compete agreements indiscriminately? P.2

Last time, we began looking at the issue of non-compete agreements in Wisconsin. As we noted, Milwaukee Mayor Tom Barrett is among those who feel that excessive use and enforcement of non-compete agreements stifles innovation in Wisconsin.

Again, non-compete agreements are not the only way to protect a company’s interests, but they can certainly be part of an overall strategy to protect valuable information and intellectual assets. There are certain requirements that must be met for non-compete agreements to be enforced in Wisconsin. 

Restrictions must be “reasonably necessary” to protect the employer’s business interests beyond avoiding ordinary competition from a stranger. Unreasonable restraints are illegal and unenforceable. Courts will not enforce the entire covenant if any part of it contains an unreasonable restraint, though a non-compete agreement will not be unenforceable simply because of an unreasonable term relating to liquidated damages.

As to the substantive terms of non-compete agreements, they must, first of all, be reasonable with respect to the period of time they apply. There is no hard and fast number that represents an unreasonable time period; it depends on the facts of the case. Employers do need to be cautious about time restraints which are indefinite, particularly if they are dependent on outcomes that cannot be predicted by the employee.

Another important requirement is that territorial restrictions be reasonable. Typically, territorial restrictions are expressed in terms of geography, but this not need be the case. Territorial restrictions can be expressed, for instance, in terms of customer lists. Non-compete agreements must include a specific territory, though, or they are void.

In our next post, we’ll continue looking at non-compete requirements in Wisconsin and the importance of working with experienced legal counsel in negotiating and defending these agreements.

Source: Wisconsin Statutes, Section 103.465

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