Schedule a Consultation: 858.483.9200
San Diego Business Law: Preventing Raids on Your Employees (Part II)
We wrote earlier about steps to take to prevent raids on your employees when a high-level, managerial employee is departing. See here. A recent case out of Wisconsin gives us an opportunity to review, update, and provide additional information on this subject. See Manitowoc Company, Inc. v. Lanning, No. 2015AP1530 (Wis. Supreme Court, January 19, 2018). For the decision of the Wisconsin Court of Appeals, see here.
As always, the legal lesson is that the careful review and drafting by a talented and experienced business attorney is necessary for any employment provision that implicates restraint of trade.
San Diego Business Law: Facts of Manitowoc Company Case
At issue in the Manitowoc Company case was a non-solicitation of employees (“NSE”) provision in a certain employee’s employment contract. The provision stated:
“I agree that during my Employment by Manitowoc and for a period of two years from the date my Employment by Manitowoc ends … I will 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.”
After Lanning, the former employee, left his employment with Manitowoc Company, he contacted nine of his former coworkers about joining him and his new employer. With three of those former co-workers, he went further, taking one out to lunch, giving one a tour of his new employer’s manufacturing plant, and helping with the job interview for a third former co-worker. Upon learning of this, Manitowoc Company sued Lanning alleging violation of the NSE provision of his employment agreement.
San Diego Business Law: NSE Was a Restraint of Trade and Thus Void
Wisconsin law disfavors any type of restraint on trade for employees unless they are narrowly tailored. Thus, non-compete agreements are generally only allowed if narrowly drawn in geographic scope and with limited time periods. By contrast, under California law, non-compete agreements are void as against public policy, and thus unenforceable. A California employer cannot prevent a former employee from going to work for a competitor or from starting up a competing business (other than in some very specific circumstances involving the sale of a business).
What is interesting for California employers is that, in Manitowoc Company, the Wisconsin courts held that the Lanning NSE was a restraint of trade — having an effect similar to a non-compete provision. In the end, the Wisconsin Supreme Court struck down the NSE provision as unenforceable because it was not narrowly drafted. Of note, the court highlighted several facts:
- NSE applied to all 13,000 Manitowoc employees
- NSE applied to every Manitowoc Company employee regardless of where they worked — employees were spread world-wide
- NSE was not limited to certain categories or types of employees
- NSE was for two years
- NSE had no exceptions for employees contacting Lanning first
- NSE was not limited to those that Lanning knew personally
San Diego Business Law: Lessons for California Employers
If narrowly drawn, NSEs are valid under California case law. See for example the case of Loral Corp. v. Moyes, 174 Cal.App.3d 268 (Cal. App. 6th Dist. 1985). In that case, the court upheld an NSE that extended one year past the employee’s separation where the NSE only prevented the former employee from soliciting. If there was an independent contact initiated by the former co-worker, that was not prohibited by the NSE.
With respect to NSEs, San Diego and California business SHOULD have such provisions. You do not want your staff to be raided when a key employee quits to work for a competitor or to start his or her own competing business. Employment contracts should absolutely ban solicitation efforts while the employee is still employed. In addition, certain post-separation restrictions are allowable in California. A skilled corporate law attorney can help.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to help draft and implement NSEs, employment agreements, and all other types of business contracts. Contact Mr. Leonard by email or by calling (858) 483-9200.
You Might Also Like:
Do Your Employees Need Non-disparagement Agreements?
