Protecting your business with noncompetes: The reasonableness standard
Learn more about noncompetition agreements for key employees.
October 19, 2013 /24-7PressRelease/ -- Protecting your business with noncompetes: The reasonableness standard
Article provided by Kerkman & Dunn
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It is hard to understate the value of key personnel to a business. Business owners invest a significant amount of time and resources into grooming employees for important roles, and it is only fair that businesses have some legal means to protect this investment.
Many businesses utilize noncompetition agreements to protect themselves from losing key employees, and from losing customers should former employees wish to establish a competing firm. State law governs noncompete covenants; in Wisconsin, these agreements are closely scrutinized if they are challenged in court. Yet, with the right legal help and an understanding of what makes a noncompete enforceable, you can take full advantage of this powerful business tool.
Reasonable Wisconsin noncompetes are limited in scope
A noncompetition agreement is only as good as its enforceability. If a former employee can take a noncompete into court and convince a judge to leave it in tattered remnants, the business that wanted it enforced has wasted significant time and resources.
So how does a business ensure that a noncompete will hold up in court? There is no guaranteed formula, but the key is that noncompete covenants must be "reasonable" to be valid under Wisconsin law.
Reasonableness is a vague concept, but years of Wisconsin court decisions give some idea of what a judge will consider to strike a fair balance between a former employee's right to work in his or her chosen profession and an employer's right to protect legitimate business interests.
There are several "prongs" of analysis that go into determining the reasonableness of a noncompete. Among them is how the type and size of the business compares to the restrictions placed on the former employee.
For instance, one Wisconsin court case invalidated a provision in a noncompete that prohibited the former employee from working in any "substantially similar business" on the grounds that this broad wording meant the employee might not be able to work even in businesses that were not direct competitors of the employer. Likewise, the proportion of the market controlled by the employer can be relevant -- a business that controls 90 percent of the market in a given area may have trouble prohibiting former employees from soliciting its customers, while one that controls 5 percent may be able to do so.
Geographic and temporal scope are also critical to enforcement. A noncompete cannot prohibit a former employee from working in a competing business for too long, or over too much territory. Limiting a former employee from competing in a certain city may be valid, but restrictions against competition with no geographic limitation -- that facially extend worldwide -- are probably never valid. Provisions that place restrictions on competition by former employees that extend for a year are routinely found to be reasonable by Wisconsin courts, but generally any restriction longer than two years is found to be unreasonable.
An experienced business law attorney can help you draft ironclad noncompetes
If you are asking employees to sign noncompete agreements -- or are considering noncompetes to protect your trade secrets and customer base -- you have taken an important and fiscally responsible step. Yet, for noncompetes to be meaningful, they must be enforceable -- and to ensure that your noncompete agreements hold up in court, you need legal help.
In addition to the requirement of reasonableness, noncompetes must meet a number of other technical legal requirements to be valid. An experienced business lawyer can help you draft enforceable noncompetes to meet your needs. Contact a Wisconsin business law firm today to get the legal assistance you need in protecting your business interests.
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