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Forbearance from Terminating Employment Is Consideration for Non-competes

In an opinion for Runzheimer Int’l, Ltd.; v. Friedlen released on April 30, 2015, the Wisconsin Supreme Court held that an employer’s forbearance in exercising its right to terminate an at-will employee constitutes lawful consideration for an employee signing a restrictive covenant. Although, theoretically, an employer could terminate an employee’s employment shortly after the employee signed the restrictive covenant, the Court stated that “the employee would then be protected by other contract formation principles such as fraudulent inducement or good faith and fair dealing, so that the restrictive covenant could not be enforced.” 

When having an current employee sign a non-compete, it has to be clear that continued employment is conditioned upon the employee signing the agreement.  In this case, the company allowed a two-week period after presentation of the agreement allowing the employee to review the agreement.  If it is clear that the employee will be terminated immediately after a review period if the employee did not sign the agreement, that is sufficient consideration to make the non-compete and confidentiality provisions enforceable against the employee.  The Court found that the forbearance of termination “at that time and for that reason” was sufficient (underlining in original).

Runzheimer Int’l, Ltd.; v. Friedlen, No. 2013AP1392Read the full opinion here

 

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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