Employers often declare that, “Employees are our most valuable asset.” The time and expense of locating, recruiting, training, and assimilating new employees into the workforce (particularly during periods of labor shortages) and the vital connection of key employees to profitability certainly supports that principle.
Human Resource professionals are often charged with two tasks linked to that corporate mantra. HR professionals are usually held responsible for protecting that “valuable asset,” in other words, preventing key employees from leaving. At the same time, HR professionals are always being asked to pursue options to lower the cost of recruiting, training and assimilating new employees, and insuring that a new hire will be profitable. The best way to accomplish that? Hire trained employees from a competitor, of course.
But, what is the greatest threat to retaining your current employees? And how do you identify your competitor’s best employees? The answer to both questions is the same: solicitations by former employees. The assistance of a former employee from a competitor can save enormous time and cost in identifying valuable targets for recruitment. Assuming the former employee has close relations with former coworkers, incorporating him or her into your recruiting efforts can pay huge dividends and lead to immediate increases in profitability. What better recruiting method than having your employee boast to his or her former coworkers about the various advantages of working for you versus their current employer?
The escalation of “recruiting wars” has led to various efforts to protect existing employees from being “poached” by a former coworker. In many cases, these protections take the form of employee non-compete agreements, which prevent employees from leaving and joining a competitor. However, the ability to enforce a non-compete agreement, particularly in Wisconsin, is unpredictable at best. Moreover, many employees fiercely resist signing non-competes, as they have become increasingly aware of the potential career leverage they are losing.
Employers have found that it is much easier to convince employees to sign “anti-poaching agreements.” Under those clauses, the employee simply agrees that, if they leave, they will not solicit their former coworkers. There are no restrictions on who they may work for in the future. In addition, it has been presumed that anti-poaching agreements are much easier to enforce, since they are not non-compete agreements and do not impact or affect an employee’s ability to leave the company in any form or manner. This assumption, unfortunately, was misplaced, as one Wisconsin employer recently discovered.
On January 19, 2018, the Wisconsin Supreme Court declared, in The Manitowoc Company v. Lanning, that anti-poaching agreements are to be construed under the same strict legal rules as non-compete agreements. As a result of the decision, many of the anti-poaching agreements currently in use by Wisconsin employers are, in fact, null and void.
Background of Case
The Lanning case reads like an HR professional’s worst nightmare. John Lanning was a gifted engineer for The Manitowoc Company, a manufacturer of large industrial cranes. During his 25-year tenure with the company, he became a critical member of the engineering team, with knowledge of critical intellectual property, design concepts, customer information, and other confidential and proprietary information. He also had in-depth knowledge of the other members of the engineering team and developed close ties with many of his coworkers.
Recognizing the importance of Lanning’s role and knowledge, Manitowoc negotiated several successive versions of employment agreements with him. Those agreements included confidentiality clauses but no non-compete agreement, presumably because Lanning resisted such an agreement. Instead, Lanning signed an anti-poaching agreement, in which he agreed, for a period of two years post-employment, not to directly or indirectly “solicit, induce or encourage” any employee to “terminate their employment” with the company or “to accept employment with any competitor, supplier or customer.” The provisions of Lanning’s anti-poaching agreement were common provisions used by many Wisconsin employers and were universally believed to be enforceable, due to the lack of any restrictions on the signing employee’s departure or future employment options.
Lanning resigned his employment with The Manitowoc Company on January 6, 2010. Two days later he became the Director of Engineering at SANY America, also a crane manufacturer and a direct competitor of Manitowoc. As SANY’s new Director of Engineering, Lanning set out to establish a premier engineering team. And he knew right where to look for the best crane engineers - his former engineering team members at Manitowoc.
Thumbing his nose at the restrictions in his anti-poaching agreement, Lanning began a direct campaign to solicit his former engineering team at Manitowoc. Within a short time period, he contacted nine of his former coworkers and spent generous sums to lure them to join SANY. He took the targeted workers to lunch, sat in on interviews, and even took one of the targeted engineers to China to tour a SANY manufacturing plant.
The Manitowoc Company’s response was predictable – they sued Lanning in Manitowoc County Circuit Court for breach of contract and sought recovery of damages, including attorney’s fees.
Outcome of the Case
The trial court had no problem determining that Lanning had flagrantly, and repeatedly, violated the unambiguous provisions of his anti-poaching agreement. The Court awarded The Manitowoc Company $97,844.78 in direct damages, $37,246.82 in costs, and $1 million in attorney’s fees.
Lanning was not deterred. His attorneys appealed the decision to the Wisconsin Court of Appeals, and the decision of that court was appealed to the Wisconsin Supreme Court.
Lanning’s attorneys argued that his anti-poaching agreement should be construed under the strict rules applicable to non-compete agreements, found in Section 103.465 of the Wisconsin Statutes. Under that statute, five “prerequisites” must be met for an agreement to be enforceable:
- The agreement must be necessary for the protection of the employer.
- The agreement must have a reasonable time limit.
- The agreement must have a reasonable territorial limit (or other definable and reasonable subject of the restriction, such as a list of personal customers in a customer non-solicitation agreement).
- The agreement must not be harsh or oppressive to the employee.
- The agreement must not be contrary to public policy.
Perhaps most importantly, Wisconsin courts have held that if an agreement is overbroad in any respect under Section 103.465, the entire agreement is unenforceable. The agreement is to be analyzed by its written terms, not how it is interpreted or intended by the employer. Even hypothetical fact scenarios (as opposed to the actual facts of the dispute) can be used to evaluate whether the agreement is overbroad.
Lanning’s attorney’s argued that Lanning’s anti-poaching agreement was overbroad and “not necessary for the protection” of The Manitowoc Company because, among other things, it prevented him from soliciting former coworkers whom he never met, and it prevented him from soliciting coworkers who were admittedly not vital to the profitability of the company. For example, he was prohibited from recruiting janitors, clerical staff, part-time employees, hourly manufacturing employees – literally any employee of Manitowoc. The restriction prevented him from soliciting employees located in other countries whom he had never met or worked with.
Manitowoc argued that anti-poaching agreements are not subject to Section 103.465 because they in no way restrict an employee (in this case, Lanning) from leaving the company or restrict his choice of new employers. He could (and did) elect to join Manitowoc’s chief competitor. The restrictions of the anti-poaching agreement simply did not prevent Lanning from earning a livelihood and therefore should be analyzed under standard contract law. Given the unambiguous nature of the restrictions, the anti-poaching agreement was fully enforceable under standard contract law, the company insisted, pointing to the widespread use of similar anti-poaching clauses in use by many other Wisconsin employers.
The Wisconsin Supreme Court sided with Lanning and reversed the judgment against him. The Court declared that Section 103.465 applies to anti-poaching agreements in the same fashion that the statute had previously been applied to employee confidentiality and customer non-solicitation agreements. The Court held that the overbroad nature of the restriction in Lanning’s agreement resulted in it being unenforceable, even though Lanning had only been focusing his efforts on key (and valuable) employees of The Manitowoc Company. The Court pointed out that Manitowoc should have drafted the agreement in a manner which protected only those key employees whom Lanning knew or worked with and should not have attempted to overreach.
Thus, the company was forced to pay a significant price, in the loss of some of its key employees (not to mention spending over $1 million in attorney’s fees to pursue the case), for its failure to narrowly draft the anti-poaching agreement.
The Lanning decision should serve as a wake-up call to all employers who are currently using, or are considering using, anti-poaching clauses in their employment agreements. Those clauses must be reviewed and modified to comport with the Supreme Court’s holding. This will likely require that existing agreements be renegotiated, along with new consideration, with the affected employees (sometimes a daunting task).
Anti-poaching agreements can still be a valuable defense tool in the ongoing “recruiting wars.” The Supreme Court has provided useful guidelines for drafting those agreements. However, there are many subtleties and legal nuances in drafting or reviewing any form of employee agreement or restrictive covenant, so review by an attorney specializing in employment law is highly recommended.
A copy of the Lanning decision, or further information on this topic, may be obtained from the LCOJ Employment Team.