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The Manitowoc Company, Inc. v. Lanning

Supreme Court of Wisconsin

January 19, 2018

The Manitowoc Company, Inc., Plaintiff-Respondent-Petitioner,
v.
John M. Lanning, Defendant-Appellant.

          Oral argument: September 5, 2017

         Manitowoc county Circuit Court L.C. No. 2011CV216) Judge Gary L. Bendix

         REVIEW OF A DECISION OF THE COURT OF APPEALS Reported at 371 Wis.2d 696, 885 N.W.2d 798');">885 N.W.2d 798

          For the plaintiff-respondent-petitioner, there were briefs filed by Suzanne M. Glisch, Joel S. Aziere, and Buelow Vetter Buikema Olson & Vilet, LLC, Waukesha. There was an oral argument by Joel S. Aziere.

          For the defendant-appellant, there was a brief filed by Oyvind Wistrom and Lindner & Marsack, S.C., Milwaukee. There was an oral argument by Oyvind Wistrom.

          SHIRLEY S. ABRAHAMSON, JUDGE.

         ¶1 This is a review of a published decision of the court of appeals reversing a judgment of the Circuit Court, Manitowoc County, Gary L. Bendix, Judge.[1]The circuit court granted the motion of The Manitowoc Company, Inc., the plaintiff, for summary judgment and denied the cross-motion for summary judgment of the defendant, John M. Lanning. After a bench trial on damages, the circuit court awarded Manitowoc Company $97, 844.78 in damages, $1, 000, 000 in attorney fees, and $37, 246.82 in costs against Lanning.

         ¶2 The court of appeals reversed the circuit court judgment in favor of Manitowoc Company. It concluded that Lanning's non-solicitation of employees provision (sometimes referred to herein as an NSE provision) imposed by Manitowoc Company as part of Lanning's employment agreement is governed by Wis.Stat. § 103.465 (2013-14) and that it is unenforceable under the statute.[2]

         ¶3 The non-solicitation of employees provision prohibits Lanning from directly or indirectly soliciting, inducing, or encouraging any employee of Manitowoc Company to terminate his or her employment with Manitowoc Company or to accept employment with a competitor, supplier, or customer of Manitowoc Company. The scope of the non-solicitation of employees provision includes all of Manitowoc Company's 13, 000 world-wide employees regardless of an employee's position within Manitowoc Company or the employee's connection to Lanning.

         ¶4 Two issues of law are presented on the cross-motions for summary judgment:[3]

1. Does Wis.Stat. § 103.465, which explicitly refers to a "covenant not to compete, " apply to the non-solicitation of employees provision prohibiting Lanning from soliciting, inducing, or encouraging any employee of Manitowoc Company to terminate his or her employment with Manitowoc Company or to accept employment with a competitor, supplier, or customer of Manitowoc Company?
2. If Wis.Stat. § 103.465 governs Lanning's nonsolicitation of employees provision, is the provision enforceable under § 103.465?[4]

         ¶5 In response to the first issue, the particular terms of the non-solicitation of employees provision at issue in the instant case do not appear to have been analyzed by any prior Wisconsin court decision.[5] We conclude, as prior cases have concluded, that although Wis.Stat. § 103.465 explicitly refers to a covenant not to compete, the plain meaning of § 103.465 is not limited to a covenant in which an employee agrees not to compete with a former employer.[6] This court has explicitly stated that "it would be an exercise in semantics to overlook § 103.465 merely because [a provision] of the agreement is not labeled a 'covenant not to compete.'"[7] Rather, § 103.465 has been applied to agreements viewed as restraints of trade.

         ¶6 Indeed, this court has acknowledged that "the explicit purpose of Wis.Stat. § 103.465, as plainly stated in the statute, is to invalidate covenants that impose unreasonable restraints on employees" and that § 103.465 "essentially deals with restraint of trade . . . regardless of whether a restriction is labeled a 'non-disclosure' provision or a 'covenant not to compete.'"[8]

         ¶7 The court has repeatedly recognized that a restraint of trade may take many forms. The court has interpreted Wis.Stat. § 103.465 as applying not only to traditional covenants in which an employee agrees not to compete with a former employer, [9]but also to other terms of an agreement including provisions barring the solicitation of the employer's customers or former customers, [10] non-disclosure/confidentiality agreements between employers and employees, [11] and a no-hire provision between two employers.[12]

         ¶8 These cases clearly demonstrate that the application of Wis.Stat. § 103.465 depends upon whether the particular terms of the agreement constitute a restraint of trade by restricting competition or imposing an unreasonable restraint on employees. These cases focused on the effect of the restraint rather than its label.[13]

         ¶9 We conclude that Lanning's non-solicitation of employees provision restricts Lanning's ability to engage in the ordinary competition attendant to a free market, specifically restricting Lanning's freely competing for the best talent in the labor pool. In addition, the limitation on Lanning also affects access to the labor pool by a competitor of Manitowoc Company (including Lanning's current employer, SANY America). Accordingly, we conclude that Lanning's non-solicitation of employees provision is a restraint of trade governed by Wis.Stat. § 103.465.

         ¶10With regard to the second issue, we conclude that Lanning's non-solicitation of employees provision is unenforceable under Wis.Stat. § 103.465. It does not meet the statutory requirement that the restriction be "reasonably necessary for the protection of the employer." Wis.Stat. § 103.465.

         ¶11 Accordingly, we affirm the decision of the court of appeals and remand the cause, as did the court of appeals, to the circuit court with instructions to enter judgment in favor of Lanning.

         ¶12 To the extent that the facts affect the issues before the court, no genuine dispute about material facts is presented.

         ¶13 Manitowoc Company is a manufacturer with two divisions: a food service equipment division and a construction crane division. Lanning began his employment with Manitowoc Company in 1985 as a chief engineer in Manitowoc Company's crane division. Lanning worked for Manitowoc Company for over 25 years. Lanning was successful, knowledgeable, and well-connected within Manitowoc Company.

         ¶14 In 2008, Lanning signed an employment agreement with Manitowoc Company that included provisions relating to confidential information, intellectual property, and nonsolicitation of employees.[14] The validity of only the nonsolicitation of employees provision is challenged in the instant case.

         ¶15 Lanning terminated his employment with Manitowoc Company effective January 6, 2010. Beginning on January 8, 2010, Lanning became the director of engineering for SANY America, a direct competitor with Manitowoc Company's crane division. Manitowoc Company claims that Lanning engaged in a number of actions that violated the non-solicitation of employees provision.

         ¶16 For example, Manitowoc Company asserts that Lanning communicated with at least nine Manitowoc Company employees about potential employment opportunities at SANY, took one Manitowoc Company employee out to lunch in connection with SANY recruitment efforts, took another Manitowoc Company employee on a tour of a SANY crane manufacturing plant in China, and participated in a third Manitowoc Company employee's job interview with SANY.

         ¶17 Lanning's non-solicitation of employees provision prohibits him, for two years following termination of his employment, from soliciting, inducing, or encouraging any Manitowoc Company employee to terminate his or her employment with Manitowoc Company or to accept employment with a competitor, supplier, or customer of Manitowoc Company.

         ¶18 The circuit court concluded that even if Lanning's non-solicitation provision is viewed as a restriction on trade or competition subject to Wis.Stat. § 103.465, the provision was reasonable and enforceable under the statute.

         ¶19 The court of appeals concluded that Lanning's nonsolicitation of employees provision was a restraint of trade governed by Wis.Stat. § 103.465.[15] It further concluded that because the provision was not reasonable, it was not enforceable under the statute. The court of appeals reversed the judgment of the circuit court in favor of Manitowoc Company. II

         ¶20 We first address the standard of review. This court applies the same method of analysis to a motion for summary judgment as does a circuit court. Summary judgment is appropriate where, based on the pleadings, depositions, interrogatories, and affidavits on file, there is no genuine dispute as to any material fact, and a party is entitled to judgment as a matter of law. Wis.Stat. § 802.08(2); Star Direct, 319 Wis.2d 274, ¶18; Belding v. Demoulin, 2014 WI 8, ¶13, 352 Wis.2d 359, 843 N.W.2d 373; Green Spring Farms v. Kersten, 136 Wis.2d 304, 315-17, 401 N.W.2d 816 (1987); Mut. Serv. Cas. Ins. Co. v. Brass, 2001 WI.App. 92, ¶4, 242 Wis.2d 733, 625 N.W.2d 648');">625 N.W.2d 648, overruled on other grounds by Star Direct, 319 Wis.2d 274, ¶78 n.12.

         ¶21 The instant case requires us to interpret both a statute and a written contract. The interpretation and enforceability of both a statute and a written contract ordinarily present questions of law that this court determines independently of the circuit court and court appeals while benefiting from the analyses of these courts. See, e.g., Moustakis v. DOJ, 2016 WI 42, ¶16, 368 Wis.2d 677, 880 N.W.2d 142; Star Direct, 319 Wis.2d 274, ¶18; Streiff v. Am. Family Mut. Ins. Co., 118 Wis.2d 602, 603 n.l, 348 N.W.2d 505');">348 N.W.2d 505 (1984) . Ill

         ¶22 The first issue of law presented is whether Wis.Stat. § 103.465 applies to Lanning's non-solicitation of employees provision.

         ¶23 We begin our discussion by setting forth the texts of Wis.Stat. § 103.465 and Lanning's non-solicitation of employees provision.

         ¶24 Wisconsin Stat. § 103.465 is broadly entitled "Restrictive covenants in employment contracts" and refers explicitly to a covenant by an employee not to compete with the employer during or after the term of employment. It states as follows that "any covenant" described in § 103.4 65 imposing an "unreasonable restraint is illegal" even as to any part of the covenant that would be a reasonable restraint:

A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.

Wis. Stat. § 103.465.

         ¶25 The agreement between Manitowoc Company and Lanning is entitled "Agreement Regarding Confidential Information, Intellectual Property and Non-Solicitation of Employees." The non-solicitation of employees provision at issue does not use the words "covenant not to compete." Rather, Lanning agrees not to solicit, induce, or encourage any employee(s) of Manitowoc Company to terminate their employment with the Company. The provision states as follows:

I agree that during my Employment by Manitowoc and for a period of two years from the date my Employment by Manitowoc ends for any reason, including termination by Manitowoc with or without cause, 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. As used herein, the term "solicit, induce or encourage" includes, but is not limited to, any of the following: (a) initiating communications with an employee of Manitowoc relating to possible employment; (b) offering bonuses or additional compensation to encourage employees of Manitowoc to terminate their employment therewith and accept employment with a competitor, supplier or customer of Manitowoc; (c) referring employees of Manitowoc to personnel or agents employed or engaged by competitors, suppliers or customers of Manitowoc; or (d) referring personnel or agents employed or engaged by competitors, suppliers or customers of Manitowoc to employees of Manitowoc.

         ¶26 Lanning's non-solicitation of employees provision does not conform to "textbook examples" of a covenant not to compete in which the employee is prohibited from engaging in competition with a former employer. In contrast to a traditional covenant not to compete, Lanning is free to obtain employment with a competitor of Manitowoc Company. Manitowoc Company employees are free to terminate employment with Manitowoc Company, be employed by any other employer, and compete with Manitowoc Company. Lanning is restricted from "poaching" any Manitowoc Company employee.[16] The provision restricting Lanning restrains competition by limiting a competitor's access to the labor pool.

         ¶27 Manitowoc Company argues that Wis.Stat. § 103.465 applies only to traditional covenants not to compete wherein an employee agrees not to engage in business activities that are competitive with those of the employer. As we stated previously, however, our cases reveal that § 103.465 has been applied to provisions that constitute restraints of trade other than traditional covenants not to compete.

         ¶28 Time and again, the case law has focused on the effect of the provision of an employment agreement rather than its label to determine whether it constitutes a restraint of trade governed by Wis.Stat. § 103.465.[17]

         ¶29 The cases state that "the explicit purpose of Wis.Stat. § 103.465, as plainly stated in the statute, is to invalidate covenants that impose unreasonable restraints on employees"[18] and that § 103.465 "essentially deals with restraint of trade . . . regardless of whether a restriction is labeled a 'non-disclosure' provision or a 'covenant not to compete.'"[19] Whether a particular agreement constitutes a restraint of trade is based not upon how the agreement is labeled but upon the effect of the agreement on employees and competition.[20]

         ¶30 Accordingly, courts have applied Wis.Stat. § 103.465 to traditional non-compete agreements, non-solicitation of customer agreements, and non-disclosure/confidentiality agreements between employers and employees as well as a no-hire provision between two employers.[21]

         ¶31 In 1995, [22] 1997, [23] and 2015, [24] the legislature amended Wis.Stat. § 103.465 but chose not to amend the statute in such a way as to undermine the court's broad application of the statute. Legislative acquiescence to a judicial construction of a statute gives rise to a presumption, albeit sometimes a weak one, that an earlier judicial construction should stand.[25] This precept of statutory interpretation reinforces the principle of stare decisis and supports the interpretation of the statute set forth herein.[26]

         ¶32 Manitowoc Company maintains that the non-solicitation provision does not restrict competition by Lanning or restrain employees. Lanning and Manitowoc Company employees are free to work for anyone, including a competitor, and competitors are "free to hire any Manitowoc employee(s) to take any job at their company .... By the plain language ... it was not Manitowoc's intent to prevent any employees from leaving or joining another employer, and/or to restrict their mobility or ability to practice and earn a living in their chosen field. Rather, the intent of the clause was to limit a key employee like Lanning from raiding Manitowoc employees. . . . "[27]According to Manitowoc Company, "the harm [to the Company] is the loss of the employee itself-not any potential competition that employee could provide against Manitowoc after leaving."[28]

         ¶33 The effect of Lanning's non-solicitation provision is to prevent Lanning and a Manitowoc Company competitor from competing fully with Manitowoc Company in the labor pool by soliciting Manitowoc Company employees. The provision prevents Lanning from taking steps to persuade a Manitowoc Company employee to leave Manitowoc Company, which would limit the ability of Lanning and other Manitowoc Company employees from working together in the future. Thus, the provision prevents employees of Manitowoc Company from having complete information regarding employment opportunities elsewhere. It limits a potentially valuable professional resource Lanning would otherwise have regarding resources in the labor market. Although the law encourages the mobility of workers, Lanning's non-solicitation of employees provision hinders the mobility of Manitowoc Company employees.[29] This court has stated that "the fundamental right of a person to make choices about his or her own employment is well-established."[30]

         ¶34 In sum, the cases have interpreted Wis.Stat. § 103.465 as including more than the "textbook example" of an employee covenant not to compete with his or her employer. In the instant case, the effect of Lanning's non-solicitation of employees provision is clear. The provision restricts one form of competition with Manitowoc Company. It restricts Lanning (and any employee of Manitowoc Company) from freely competing against Manitowoc Company in the labor market by insulating any Manitowoc Company employee from Lanning's solicitations.

         ¶35 We agree with the reasoning of the court of appeals that Lanning's non-solicitation of employees provision is a restraint of trade governed by Wis.Stat. § 103.465. As the court of appeals explained:

It is no leap of logic to conclude that a provision aimed at restricting a former employee from "systematically poaching" the valuable and talented employees of his former employer is a restraint of trade. Lanning may not, among other things, compete with Manitowoc by attempting to recruit Manitowoc's best employees. While the NSE provision does not circumscribe Lanning's own employment opportunities, it nevertheless limits how Lanning-now employed by a direct competitor-can compete with Manitowoc. In short, the NSE provision does not allow for the ordinary sort of competition attendant to a free market, which includes recruiting employees from competitors.

Lanning, 371 Wis.2d 696, ¶17.

         ¶36 Our reasoning and conclusion are in accord with federal courts interpreting Wisconsin law[31] and with cases in other jurisdictions interpreting non-solicitation of employees provisions.[32] These decisions have determined that similar nonsolicitation of employees provisions constitute restraints of trade. These decisions are not binding on this court but are persuasive.

         ¶37 For the reasons set forth, we conclude that the nonsolicitation of employees provision at issue is a restraint of trade governed by Wis.Stat. § 103.465. IV

         ¶38 Having concluded that Wis.Stat. § 103.465 applies to Lanning's non-solicitation of employees provision, we address the second issue of law presented, namely, whether the provision is enforceable under § 103.465.

         ¶39 Beginning in Lakeside Oil Co. v. Slutsky, 8 Wis.2d 157, 162-67, 98 N.W.2d 415');">98 N.W.2d 415 (1959), and continuing in the case law thereafter, the court has interpreted Wis.Stat. § 103.465 as "establishing five prerequisites that a restrictive covenant must meet in order to be enforceable."[33]

         ¶40 The five "prerequisites" that must be met are as follows. The restraint must:

(1) be necessary for the protection of the employer, that is, the employer must have a protectable interest justifying the restriction imposed on the activity of the employee;
(2) provide a reasonable time limit;
(3) provide a reasonable territorial limit;
(4) not be harsh or oppressive as to the employee; and (5) not be contrary to public policy. Star Direct, 319 Wis.2d 274, ¶20.

         ¶41 If Lanning's non-solicitation of employees provision fails to satisfy even one of these "prerequisites, " the entire non-solicitation of employees provision is invalid. By enacting Wis.Stat. § 103.465, the legislature made a policy choice to place the burden of drafting a reasonable restrictive covenant on the employer, who often wields greater bargaining power and is generally in a better position to show that a restraint is no broader than is necessary to protect the employer's business.[34]

         ¶42 We begin with the first prerequisite, that is, that the Manitowoc Company must have a protectable interest justifying the restriction on Lanning's employee's activities.

         ¶43 Manitowoc Company asserts that it has an interest in protecting itself from "the loss of the employee(s) it trained and invested time and capital in, and the institutional understanding, experience, and intellectual capital they possess. "[35]

         ¶44 The text of the non-solicitation of employees provision bars solicitation by Lanning of "any employee(s)" to terminate employment with Manitowoc Company. The court interprets and applies this language in accordance with the maxims adopted for the interpretation of restrictive covenants.

         ¶45 A restraint of trade to which Wis.Stat. § 103.465 applies is interpreted in a reasonable way to give the words their plain meaning, to give effect where possible to the entire provision, and to avoid absurd results. Star Direct, 319 Wis.2d 274, ¶62. Within this maxim, restrictive covenants are disfavored at law, subject to close scrutiny, and are read in favor of the employee. Star Direct, 319 Wis.2d 274, ¶62.

         ¶46 The words "any employee" in the non-solicitation of employees provision prohibits Lanning from soliciting every one of Manitowoc Company's 13, 000 world-wide employees. The words "any employee" mean, in common parlance, every employee. The court has in a number of cases explained that a phrase modified by the word "any" indicates broad application.[36]

         ¶47 The non-solicitation provision contains no limitations based upon the nature of the employee's position within Manitowoc Company. No limitations are based upon Lanning's personal familiarity with or influence over a particular employee. There is no limit based upon the geographical location in which the employee works.

         ¶48 Manitowoc Company asserts a protectable interest in protecting its investment of time and capital involved in recruiting, training, and developing its employee base from "poaching" by a "former employee who ha[s] full awareness of the talent and skill set of said employee base."[37] At trial, Manitowoc Company presented evidence to establish the financial and non-monetary costs and harm it experienced in losing and trying to replace employees.[38] Manitowoc Company asserts that the loss of employees harms the Company regardless of whether the employee goes to work for a competitor or a non-competitor of Manitowoc Company.

         ¶49 The argument that Manitowoc Company has a protectable interest in maintaining its entire workforce flouts the generally recognized principle that the law "does not protect against the raiding of a competitor's employees."[39] The cases and literature explain that ordinarily an employer's protectable interest is limited to retaining top-level employees, employees who have special skills or special knowledge important to the employer's business, or employees who have skills that are difficult to replace.[40] Ordinarily, a stranger may entice Manitowoc Company employees to accept employment with a competitor of the Company.[41] The court has declared that "[a]n employer is not entitled to be protected against legitimate and ordinary competition of the type that a stranger could give."[42]

         ¶50 Manitowoc Company drafted the non-solicitation of employees provision and could have tailored the language to its specific needs. It does not argue that the non-solicitation of employees provision is limited to Lanning's solicitation of only certain employees. Manitowoc Company does not contend that it intended to limit the words to apply only to the solicitation of employees with sensitive or company-specific information or to the solicitation of employees with whom Lanning has worked or to those employees with skill sets with which Lanning was familiar.

         ¶51 Rather, Manitowoc Company argues that the court should apply a "sliding scale" to gauge whether the non-solicitation provision meets the prerequisites of Wis.Stat. § 103.465, maintaining that because the non-solicitation of employees provision is less onerous than a traditional covenant not to compete, it should receive less-exacting scrutiny. In other words, the Company argues that a less burdensome nonsolicitation of employees provision should not be held to the same legal requirements as a traditional covenant not to compete.[43]

         ¶52 The sliding scale, Manitowoc Company argues, would recognize that significant restrictions imposed on an employee place a significant burden on the employer to justify the restriction by showing that the restriction is no broader than is necessary to protect a legitimate business interest.[44] Less significant restrictions imposed on an employee should place a less significant burden on the employer to justify the restriction, Manitowoc Company argues.

         ¶53 We reject Manitowoc's proposed "sliding scale" approach that would subject various restraints of trade and competition to different legal standards. The sliding scale approach has no basis in Wisconsin law.

         ¶54 Wisconsin Stat. § 103.465 does not create separate legal standards applicable to traditional and non-traditional non-compete provisions. Our legislature has balanced the employer's business needs and the employee's interest in personal liberty under § 103.465 and has declared that if an agreement imposes an unreasonable restraint, it is illegal, void, and unenforceable even as to so much of the covenant as would be a reasonable restraint. We are bound by the legislature's decision.

         ¶55 Because Lanning's non-solicitation of employees provision restrains trade by restraining competition and inhibiting the mobility of employees, it must meet all five prerequisites identified in Lakeside Oil and Star Direct in order to be enforceable under Wisconsin law. Manitowoc Company has the burden to prove that Lanning's non-solicitation of employees provision meets all five prerequisites.[45]

         ¶56 The plain language of Lanning's non-solicitation of employees provision creates a sweeping prohibition that prevents Lanning from encouraging any Manitowoc Company employee, no matter the employee's job or location, to terminate his or her employment with Manitowoc Company for any reason, or soliciting any Manitowoc Company employee to take any position with any competitor, supplier, or customer of Manitowoc Company.

         ¶57 Lanning does not have specialized knowledge about all of Manitowoc Company's 13, 000 world-wide employees across both its construction crane and food service equipment divisions. Lanning does not have a relationship with every Manitowoc Company employee. Yet Lanning's non-solicitation of employees provision prevents him from encouraging any Manitowoc Company employee to terminate his or her employment.

         ¶58 Noting the extensive reach of the language of the nonsolicitation of employees provision, the court of appeals explained that "Manitowoc has drafted a provision that requires it to prove that it has a protectable interest in preventing Lanning from encouraging any employee to leave Manitowoc for any reason, or to take any job with any competitor, supplier, or customer." Lanning, 371 Wis.2d 696, ¶30.

         ¶59 In applying the prerequisites that must be met under Wis.Stat. § 103.465, we conclude, as did the court of appeals, that the non-solicitation of employees provision is overbroad on its face. Without a specified territory or class of employees, the provision restricts Lanning's conduct as to all employees of Manitowoc Company everywhere. Lanning's non-solicitation of employees provision covers each of the 13, 000 Manitowoc Company employees regardless of the business unit in which they work or where in the world they are located.

         ¶60 We agree with the court of appeals that Manitowoc Company has failed to satisfy the first prerequisite, namely that Manitowoc Company does not have a protectable interest justifying the restriction imposed on the activity of the employee. Because our conclusion as to the first ...


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