Wisconsin Non-Competes: Five Requirements Every Employer and Employee Should Understand

Wisconsin has some of the most stringent restrictions on restrictive covenants in employment contracts of any state in the U.S. This makes these clauses some of the most closely scrutinized clauses in Wisconsin employment contracts.

Whether you are an employer enforcing restrictions against former employees or an employee evaluating whether you have violated or could violate your employment contract, it is crucial to understand how Wisconsin courts analyze these clauses.

Types of Restrictive Covenants

Before we dive into the meat and potatoes of the law, it is important to understand what the terms in your employment contract mean. Generally, clauses in employment contracts that restrict competition are known as “restrictive covenants.” There are a few popular restrictive covenants, each of which have different purposes:

• Non-compete clauses: Restricts where or for whom an employee can work.
• Customer non-solicitation clauses: Restricts which of the employer’s current or prospective customers or clients an employee can continue to work with or solicit to work with after leaving their employer.
• Employee non-solicitation clauses: Restricts whether an employee can solicit their coworkers to leave their current employment.
• Non-disclosure/confidentiality clauses: Prohibits the employee from sharing the employer’s data or information. To the extent that a confidentiality clause protects “trade secrets,” it may be subject to trade secret laws, rather than restrictive covenant laws.
• Non-disparagement clauses: Prohibits the employee from making negative or damaging statements about the employer or its employees.

When Courts Apply Wis. Stat. § 103.465 to Restrictive Covenants

Wis. Stat. § 103.465 governs the enforceability of restrictive covenants. The purpose of Wis. Stat. § 103.465 is to prevent employers from subjecting employees to unreasonable restraints of trade.^[1]

Whether Wis. Stat. § 103.465 applies depends on whether the provisions at issue restrict ordinary competition in the free market.^[2] When a restrictive covenant is inextricably linked to the employee’s employment, such as when the employee signs the restrictive covenant at the inception of his employment, or when the employer possesses an unfair bargaining advantage over the employee, then Wis. Stat. § 103.465 typically applies.^[3] In contrast, when the parties are presumed to have more equal bargaining power, like in a stock option contract or in an asset purchase agreement, the restrictive covenants are usually reviewed more leniently and may not be subject to Wis. Stat. § 103.465.^[4]

Five Requirements of Wis. Stat. § 103.465

If a court finds that Wis. Stat. § 103.465 applies to your employment contract, then the restrictive covenants within the contract must pass five stringent requirements to be enforceable.

1. Necessary to protect a legitimate business interest

There must be special circumstances that would create a need for the employer to place a restrictive covenant on the employee. The threat of competition by the employee cannot simply be ordinary competition that could be created by a stranger; the employee must pose a threat of legitimate competition to the employer. If the employee is in a role in which she works closely with current or prospective customers, then the court may find that the employer has a need to protect itself from losing the business’s current or prospective customers when the employee leaves.

2. Reasonable in time

A reasonable length of time is dependent on the facts of the case, but typical enforceable ranges are 6–24 months, depending on the industry, role, sales cycle, and how long confidential information stays competitively valuable.

3. Reasonable in territory or scope

Some restrictive covenants contain geographic restrictions whereby the employee is restricted from working in a specific geographic area. A geographic restriction should match where the employee actually worked or where the employer has protectable relationships.

Some restrictive covenants contain activity restrictions whereby the employee is restricted from working with a specific group of customers or clients. An activity restriction could be deemed too broad if it would make it difficult for an employee to discern which of the employer’s customers it cannot work with. In general, activity restrictions fare better than broad geographic bans.

4. Not harsh or oppressive to the employee

There are no specific qualities that the courts look to when assessing reasonableness to the employee, rather, they take a holistic view of who the employee is and how much the restriction limits the employee’s employment opportunities. In the past, courts have considered the employee’s characteristics, like age, education, skillset, and ability to obtain a job.

5. Not contrary to public policy

Courts can assess various statutes, regulations, and case law to determine whether it believes a clause violates public policy. Overly broad restraints – especially those that ban employees from working in an entire industry or from working for any of the employer’s competitors – risk invalidation for going against public policy.

Severability of Unreasonable Provisions

In Wisconsin, if a court finds that a restrictive covenant fails any one of the five requirements, then the whole restrictive covenant is deemed unenforceable. Wisconsin courts do not practice what is called “Blue Penciling,” which is the term used when courts are willing to narrow a provision it deems unreasonable to make the provision reasonable. For example, in some states, if a court finds that a 5-year restriction is too broad, then it may narrow the restriction to 2 years. In contrast, if a Wisconsin court found that a 5-year restriction is too broad, it would be unwilling to narrow the restriction and would, instead, find the entire provision unenforceable.

It is important to note that if an employment contract contains multiple restrictive covenants (i.e., a non-compete, a non-disclosure, and a non-disparagement), then each of the restrictive covenants must be evaluated under the five requirements independently.^[5] For example, if it is found that the non-compete clause in a contract is unenforceable, that does not necessarily mean the non-disparagement or non-disclosure clauses in the same contract are unenforceable.

Federal Considerations

This article is intended to address the enforceability of non-competes in the State of Wisconsin; however, there have been major developments in the enforceability of non-competes at the federal level over the last couple of years. In April 2024, the Federal Trade Commission (FTC) banned non-competes nationwide. Since the ban, there has been ongoing litigation in federal court about the enforceability of this ban. As of the date of this article, the federal non-compete ban is not in effect. It is advisable, however, to go to the FTC’s website, or consult an attorney, about the status of this ban before you attempt to enforce a non-compete.

Conclusion and Key Takeaways

For employers, keep in mind that it is difficult to draft a restrictive covenant that is enforceable under Wisconsin law, it is best to have an attorney assist you with drafting an enforceable provision. If you are looking to enforce a restrictive covenant, reach out to an attorney to review it and advise you as to whether or not a lawsuit against your employee is worth pursuing.

For employees, even though restrictive covenants are difficult to enforce in Wisconsin, that does not mean your employer will not try to enforce its restrictive covenant. As such, even if you think the restrictive covenant would not survive a lawsuit, you may still incur exorbitant legal fees to defend a lawsuit. If you are looking to leave your current employer, or already have and are worried you may violate your restrictive covenants, reach out to an attorney. Similarly, if a lawsuit has already been filed against you, you may represent yourself, but this area of the law can be difficult to navigate without an attorney.

If you or your employer have any questions or concerns about complying with these laws, or if you are facing a dispute regarding restrictive covenants, please contact the legal professionals at West & Dunn online through our Contact Us page or by telephone at (608) 535-6420 for a free consultation.

^[1] Manitowoc Co. v. Lanning, 2018 WI 6, ¶ 29, 379 Wis. 2d 189, 906 N.W.2d 130.

^[2] Id. at ¶¶ 8-9.

^[3] Selmer Co. v. Timothy Rinn & Ganther Constr., Inc., 2010 WI App 106, ¶ 17, 328 Wis. 2d 263, 789 N.W.2d 621.

^[4] When a restrictive covenant is not subject to Wis. Stat. § 103.465, it is scrutinized under the common law rule of reason, which requires the court to determine whether: (1) the covenant is reasonably necessary for the protection of the employer; (2) the time, place, and purpose of the restraint is reasonable to the employee; and (3) the covenant is not specifically injurious to the public. Id. at ¶ 24.

^[5] See Star Direct Inc. v. Dal Pra, 2009 WI 76, ¶ 81, 319 Wis. 2d 274, 767 N.W.2d 898.