Wisconsin Court of Appeals Addresses Enforceability of Covenants Not to Compete Entered Into as Part of Stock Option Agreements
In Wisconsin (and the same is true in most states) there are two sets rules for interpreting non-competition agreements: one set of rules for agreements incident to the sale of a business, and one set for most other agreements. Courts permit great latitude in enforcing agreements incident to the sale of a business, but are very strict and inflexible in interpreting most other agreements. In many cases, whether an agreement is valid, or not, depends on which rules apply. On July 13, 2010, the Wisconsin Court of Appeals decided the case of Selmer Co. v. Rinn, in which the court upheld a restrictive covenant procured by Selmer Co. from an employee because the covenant was obtained without consequence to the employee’s job status. The court upheld a covenant not to compete that was part of a stock option agreement that the employee had signed while still employed by Selmer. The case is significant because the court made clear that Wisconsin Statutes Section 103.465, which normally requires Wisconsin Courts to carefully scrutinize such covenants in the employment context, did not apply to the covenant in question.