Wisconsin Business and Commercial Litigation

Employers, take heart.  There’s a new case that give guidance on how to escape the glaring scrutiny cast on your non-competition/solicit agreements by Wis. Stat. s. 103.465.  In The Selmer Co. v. Rinn, the Wisconsin Court of Appeals upheld a Brown County trial court decision that concluded the non-compete at issue did not fall within the reach of the statute., but rather was to be examined under the “rule of reason.”  How was this possible?

The court began by citing Reiman Associates, Inc. v. R/A Advertising, Inc., 102 Wis. 2d 305, 306 N.W.2d 292 (Ct. App. 1981), for the proposition that not all non-compete agreements are governed by the statute.  Specifically, it drew parallels with the facts of the Rinn case:

Rinn was, of course, an employee at the time he contracted for the right to purchase corporate stock, and Selmer’s motivation for the offer–made explicit on the first page of the agreement–was to “promote [Selmer's] growth and development by providing increased incentives for key employees .” However, unlike typical restrictive covenants, upon which a prospective employee’s position may depend, there were no consequences attached to Rinn’s refusal to accept the agreement. The circuit court found Rinn was not pressured to sign the stock option agreement, nor was his employment conditioned upon his doing so. Indeed, the circuit court found Rinn’s refusal would not have affected his employment in any way.

Accordingly, Selmer held no bargaining advantage over Rinn. Rinn was free to walk away from the transaction; instead, he seized the opportunity to purchase an ownership interest in Selmer’s parent company. In exchange for Selmer’s promise to make discount stock available, Rinn forfeited his ability to tap Selmer customers for one year following his employment.⁽⁸⁾ Although Rinn has received the benefit of that bargain–he exercised the stock option and more than quadrupled his initial investment–he now seeks to evade the consequences of that choice by invoking WIS. STAT. § 103.465’s protections. This case falls closer to the bargained-for exchange in Reiman than it does to the employment cases cited above.

The court appeared most convinced by the idea that while there was an incentive provided to Rinn to sign the non-compete (discount stock prices), there were no consequences if he did not sign the agreement.  The court followed up with a common-law reasonableness analysis:

Having determined WIS. STAT. § 103.465 does not apply, we must determine whether the covenant not to compete satisfies the common law’s rule of reason. In determining reasonableness, we examine whether the covenant is:  “(1) reasonably necessary for the protection of the beneficiary;” (2) reasonable between the parties, “particularly as to the party restrained, considering time, space, purpose, and scope; and (3) not specially injurious to the public.” Reiman, 102 Wis. 2d at 309. Whether a covenant is reasonable is a matter of law to be determined from the writing. My Laundry Co. v. Schmeling, 129 Wis. 597, 613, 109 N.W. 540 (1906).

The elements are materially identical to the Wis. Stat. 103.465 analysis, but the scrutiny is much lower.  Consider this when the next non-compete discussion arises.

chains photo courtesy [sic]’s flickr gallery via this license