This week in MMM we will briefly discuss the first question: Can an employer draft and enforce a "no-poaching" agreement with its employees? The most important aspect to note in analyzing the law in this area is that it is highly 'fact-specific' and 'state-specific'. And the likelihood of successful enforcement is very jurisdiction specific----meaning that some courts even within the same state are far more likely to enforce these 'no-poaching' agreements than others. So drafting must be done with a careful eye to these factors----- the facts justifying the applicability of the agreement in light of the state-specific law. We offer, as an example of the importance of adhering to a full analysis of these factors, a recent case in Wisconsin where the employer came away saying 'close but no cigar'!
Last month, the generally 'pro-business' Wisconsin Supreme Court reversed a million dollar plus judgment for the employer in the lower court and held that an employee non-solicitation covenant was overly broad and unenforceable under state law. In The Manitowoc Company, Inc. v. Lanning, the Court confirmed Wisconsin Statute ยง103.465, which governs covenants not to compete, also extends to agreements not to solicit employees. The court, applying the statute, held that the employee non-solicitation covenant did not meet the statutory criteria for valid non-competes. And since Wisconsin does not 'blue-pencil' under the statute, it held the agreement unenforceable "even as to any part of the covenant that would be a reasonable restraint."
The facts involved in this case show the importance of this ruling to employers in highly competitive markets. The employer in the case, The Manitowoc Company, is a large manufacturing company that produces food service equipment and construction cranes. The alleged 'poacher' was as a chief engineer in its construction crane division who held the position for about 25 years, when he resigned his employment to become the director of engineering for one of Manitowoc's direct competitors. Once employed at the competing entity Lanning admittedly participated in efforts by that company to recruit at least nine Manitowoc employees. Manitowoc sued the alleged 'poacher' for violating an agreement he signed that included a covenant not to solicit Manitowoc employees. Under that agreement, he committed, for a period of two years following his separation of employment, to "not (either directly or indirectly) solicit, induce or encourage any employee(s) to terminate their employment with Manitowoc or to accept employment with any competitor, supplier or customer of Manitowoc.
Applying the statute to the employee non-solicitation covenant, the Court ruled that the covenant failed to meet the requirement that it be "no broader than is necessary to protect the employer's business." The court decided that it prohibited the departed employee from encouraging Manitowoc's employees to resign their employment for any purpose, even a non-competitive one such as retirement and it restricted him from soliciting access "any" of Manitowoc's 13,000 employees, even those with whom he had never worked and about whom he had no unique knowledge or relationship.
So, the Manitowoc case instructs that if an employer decides to undertake the mission of developing and attempting to enforce 'no-poaching' agreements it should do so with a very careful eye to applicable law especially so as to not draft arguably 'overbroad' agreements. Next week in MMM we will discuss the potential dangers in agreeing with fellow competitors not to poach each other's employees----an area where federal and state antitrust law is playing an increasing role.
If you have any questions about this issue please feel free to call on any PSB attorney.
