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Wisconsin Supreme Court Provides New Guidance Regarding Non-Compete Agreement

Posted on by Menn Law

On April 30, the Wisconsin Supreme Court issued a very important decision concerning non-compete agreements (and other similar types of employment restrictive covenants) that will have a significant effect on employers and their at-will employees across the State. In the case of Runzheimer International, Ltd.,v. David Friedlen, et al, 2015 WI 45 (case no. 2013AP1392), the Wisconsin Supreme Court took up the question of whether an employer could require an at-will employee to sign a non-compete without having to give that employee any “consideration” beyond continued employment with the company.

Prior court decisions had generally held that in order for a non-compete to be enforceable, the employee must be given something of value in exchange for signing the non-compete. In other words, simply agreeing to continue to allow the employee to work for the company in exchange for the employee signing the agreement was not adequate consideration, because the employer was not really giving anything up.

In the Runzheimer decision, the Supreme Court ruled that an employer may require an at-will employee to sign a non-compete in exchange for ongoing employment, concluding that the employer’s “forbearance of its right to terminate an existing at-will employee [. . .] constitutes lawful consideration.”

The chief argument in opposition to the Court’s position was the concern that under the Supreme Court’s approach, an employer could require an at-will employee to enter into a non-compete, then terminate that employee the very next day, leaving the employee without a job and bound to the terms of the non-compete.

Conceding that less-than-scrupulous employers might utilize this tactic, the Supreme Court nonetheless concluded that at-will employees who fell victim to this sort of conduct already had remedies under contract law, namely claims for fraudulent inducement and breach of good faith and fair dealing.

Interestingly, all but one of the Supreme Court Justices joined in the opinion. The only holdout was Justice Shirley Abrahamson, who issued a separate, concurring opinion. The Supreme Court’s decision, coupled with pending legislation (2015 Senate Bill 69) that would significantly alter the rules governing a trial court’s ability to modify the actual terms of a non-compete in order to make the covenant “reasonable,” demonstrate a changing landscape in this oftentimes contentious area of the law.

Whether you are an at-will employee or a business owner, the business attorneys at Menn Law Firm, Ltd., are here to provide you with whatever guidance you may need concerning non-compete agreements or other types of employment-related restrictive covenants.  For further information on this topic, please contact Atty Will McKinley at William-McKinley@mennlaw.com.  All of Menn’s attorneys may be reached at (920) 731-6631.

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Update to Landlord Tenant Law

Posted on by Menn Law

Most owners of residential rental properties (“landlord”) have experience with tenants who do not pay rent or utility bills. As of January 1, 2015, Wisconsin Statute section 66.0809 allows landlords to shift the burden of collecting unpaid municipality utility bills to the municipality. This assumes the municipality adds unpaid utility bills to the real estate tax bill at the end of the year. This only applies to municipality provided utilities; it does not apply to private utilities.

To get this result, the landlord must write to the municipality and provide the municipality with the names and addresses of the landlord and tenant. The landlord may also need to provide a copy of the lease to the municipality showing that the tenant is responsible for paying the utility charges. The municipality will then send its bills to the tenant in the tenant’s name. When the tenant vacates, the landlord must notify the municipality of the tenant’s departure. The written notice must be delivered to the municipality within 21 days after the date on which the tenant vacates, and the notice must provide the forwarding address of the tenant and the date that the tenant vacated. The municipality will then be responsible for sending past-due notices to the tenant.

When the tenant fails to pay, the municipality, after either a notice of arrears is given or after past-due charges are certified, has a lien against the tenant. The municipality may provide notice to the tenant of the lien or file the lien with the clerk of courts. Once the lien is established, the municipality collects from the tenant like any other lien holder.

Landlords should take advantage of this new law because the law requires a municipal utility to give a landlord who has triggered the law notice of a tenant’s unpaid utility charges.  If a utility fails to provide this notice timely, the landlord would not have to pay the tenant’s unpaid utility bill and would avoid having the unpaid charges added to the landlord’s property tax bill for the property. However, if the municipality does provide proper notice to the landlord of the tenant’s failure to pay the charges, the municipality may continue to place the unpaid charges on the landlord’s property tax bill for the property. If the landlord pays the charges, the municipality must transfer its lien on the tenant’s assets to the landlord. Currently, municipal groups are drafting forms for utilities to use to transfer this lien on a tenant’s assets to landlords.  Landlords would be able to use this form to file the lien with the court.

Menn Law Firm regularly advises clients on landlord/tenant matters. For further information on this topic, please contact Atty William P. McKinley at William-McKinley@mennlaw.com.  All of Menn’s attorneys may be reached at (920) 731-6631.

 

 

 

 

USING MULTIPLE ENTITIES FOR EXPANDED LIABILITY PROTECTION

Posted on by Menn Law

Corporations and limited liability companies (LLCs) provide their owners liability protection. An owner is generally not personally liable for the debts, obligations or other liabilities of these entities. Thus, virtually all businesses are legally formed as corporations or LLCs.

Suppose your business is a corporation, and it has been renting its facility for years. It now has the opportunity to purchase the facility. You know you want personal liability protection from any injuries which may occur at the facility, so you know you do not want to personally purchase it. Should you have the corporation buy it?

A better idea is to form a new LLC to purchase the facility, which would rent the facility to the corporation. Why is this a better idea?

Presumably your successful business (the corporation) has value. You would like to protect that value from liabilities which could fall upon the owner of the facility. For instance, if someone gets injured because of a failure to maintain the parking lot that injured party may sue the parking lot’s owner. While liability insurance is the first protection for the parking lot owner, there could be scenarios where the injury is serious enough that your insurance limits are exceeded. If the owner of the parking lot is a separate LLC, and the injured party can successfully sue the owner of the parking lot, then that new LLC is at risk. However, you would not only have personal liability protection for yourself, but you would also have liability protection for your corporation (presuming your corporation was not responsible for maintaining the parking lot).

Or, let us suppose you have two children attending the same college. You decide to purchase an off-campus house near the college where your children and some of their friends can live. Hopefully you will create an LLC to purchase that house, and give you liability protection from the endless possibility of injuries which can occur when your son decides to host a party.

Suppose you find that being an owner of a rental house to college students is financially successful. You decide to buy two more houses near the campus to use for off-campus rental housing. Should you have that LLC purchase those two houses as well?

A better idea would be to establish separate LLCs for each rental house. Why? Let’s suppose an injury occurs at house #3, and the owner of house #3 becomes liable. If you just have one LLC owning all three houses, that LLC will have all the liability. All three rental houses (owned by the same LLC) are essentially at risk to pay the liability for the injury at house #3.

On the other hand, if house #3 is owned by LLC #3, then only LLC #3 is at risk. The separate LLCs which own houses #1 and #2 will not have any liability for an injury which occurs at house #3. Thus, you will have preserved the equity in houses #1 and #2.

Menn Law Firm regularly advises clients on liability protection. For further information on this topic please contact Attorney Doug Hahn at douglas-hahn@mennlaw.com or at 920-731-6631.   All of Menn’s attorneys may reached at 920-731-6631.

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