State-specific non-competes a wise move for businesses

March 16, 2013

State-specific non-competes a wise move for businesses

Article provided by Kerkman & Dunn
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Increasingly, companies that might have once been local are doing business all throughout the United States. It is not uncommon for companies to have headquarters in one state and branch offices or employee outposts in others.

In response to this trend, many companies are trying to save time and money by crafting "one size fits all" legal documents. However, while this strategy may seem more efficient, it usually leads to unintended consequences later on down the road. Employment and business laws still vary greatly from state to state, so businesses that try to use this strategy may ultimately find themselves with unenforceable agreements on their hands.

This is especially true when it comes to non-compete agreements. Non-competes can be valuable tools for businesses looking to protect their assets and customer bases from being misappropriated by former employees. On the other hand, though, some strictly worded non-compete agreements can restrict departing employees more than is reasonable, making it extremely difficult for them to earn a living.

Each state strikes the balance between employer and employee needs differently. Non-compete agreements that don't comply with the specifics of state laws may be severely restricted, or even thrown out entirely. This is true even for neighboring states. For example, Wisconsin's non-compete law is different enough from Minnesota's that companies with offices in both states will likely want to draft two different non-compete agreements.

Choice of law provisions

Some companies try to get around this problem by inserting a "choice of law" provision into their non-compete agreements. Essentially, both parties to a non-compete agree to a clause that says that any disputes over the agreement will be resolved in accordance with the laws of a particular state.

These clauses don't always hold up in court, though. This is especially true in cases where the state in which the dispute occurs has much more restrictive non-compete laws than the state whose law has been chosen. The better route is almost always to draft a non-compete agreement that is specifically tailored to the law of the state in which the dispute will arise.

Enforcing Wisconsin non-compete agreements

Wisconsin has its own state-specific non-compete rules. For example, if certain parts of a non-compete agreement are deemed unenforceable, courts in most states will usually try to salvage the rest of the agreement by enforcing the allowable provisions that remain. Thus, businesses can benefit from drafting non-compete agreements that are broken down into discrete provisions. However, this is not the case in Wisconsin. Generally, if a provision of a non-compete agreement is unenforceable, the whole agreement is unenforceable.

In addition, Wisconsin courts generally aim to interpret ambiguous provisions with deference to the employee. This isn't to say that courts will purposely interpret non-competes in an absurd or unreasonable way in order to rule against an employer; rather, when there is confusion over the reasonable meaning of part of the agreement, courts will often read the provision in a light that is favorable towards the employee. Thus, it is important that non-compete agreements are drafted with clear and unambiguous language.

These are just two of the many concerns that present themselves in Wisconsin non-compete disputes. Because the law is so complicated, businesses seeking to draft non-compete agreements -- or anyone seeking to challenge or defend a non-compete agreement in court -- would be wise to consult with an experienced Wisconsin business law attorney who can offer skilled assistance.