YOU CAN’T TAKE MY SECRETS!
Every employer has individuals who are critical to the operation of their business. These individuals frequently have access to sensitive company information. Many times Employers want to reduce the risk of key employees leaving their company and taking sensitive information to a competitor. Businesses do this by including a restrictive covenant in a written employment contract.
Prior to July of 2009, restrictive covenants in Wisconsin were disfavored by the courts. In other words, the courts tended to find fault with various restrictive covenants, thereby allowing the Employees to go to work for subsequent competitors, with few, if any, limitations.
Areas where the courts have enforced restrictive covenants deal with utilization of trade secrets, protection of customer relationships and good will, protecting detailed customer information, protecting high levels of strategic information, shielding information concerning relationships with past customers, limiting information concerning company account lists or concerning technical know-how, applying restrictive covenants to niche industries, and limiting utilization of referral networks by the former Employee.
In July 2009, the world of restrictive covenants was shaken up by the Wisconsin Supreme Court, in the Star Direct case. Since that time, restrictive covenants have been interpreted in ways that are more favorable to Employers.
The Star Direct case involved a former Employee named Eugene Dalpra, who wanted to leave his employment with Star Direct as a company route salesman, and establish his own company. Mr. Dalpra had a restrictive covenant which addressed three basic areas:
1. Customer clause – which restricted solicitation and competition for current and past customers of the company who had dealings with Mr. Dalpra;
2. Business clause – which prohibited Mr. Dalpra from engaging in “substantially similar or competitive” businesses within his prior assigned sales territory; and
3. Confidentiality clause – which restricted the use or disclosure of “all information or knowledge, disclosed or otherwise obtained by him during his employment.”
The Wisconsin Supreme Court found that the Customer clause and the Confidentiality clause were entirely appropriate, but struck down the Business clause as overly broad and unenforceable.
The Court stated that the standard to be used when enforcing portions of restrictive covenants, while invalidating others, is whether or not each portion could be independently understood and enforced. The court admitted that this type of analysis would be very fact intensive, focusing on the totality of the circumstances surrounding the employment.
For Employers, the lesson to be learned from Star Direct is that restrictive covenants must be drafted very carefully. Specifically, each portion of the restrictive covenant (i.e. the customer clause, the business clause, and the confidentiality clause) must be drafted in a way that each can stand alone. This way, if one portion is stricken by the court for unreasonably limiting the former employee, the other portions can be enforced.
If you have an employee who is critical to your organization, consult with an attorney at Menn Law firm. For further information on this topic or any other employment law issues, please contact Attorney Pat Coffey at firstname.lastname@example.org. All our attorneys may be reached at 920-731-6631 to discuss the legal services you need.