Are Wisconsin Noncompete Contracts Legal in 2024?

 Posted on September 11, 2024 in Business Law

Noncompete agreements are contracts between employers and employees that restrict the employee’s ability to work for a competing business or start a competing company for a certain period of time after their employment ends. These agreements can help protect a business's trade secrets, customer relationships, and other confidential information. However, there has been growing concern that noncompete agreements unfairly limit workers’ ability to seek new employment opportunities.

In early 2024, the Federal Trade Commission (FTC) proposed a rule to ban most noncompete agreements across the United States. The FTC argued that these contracts prevent workers from earning higher wages and moving freely between jobs, which they believe harms competition. Although this proposal faced legal challenges, the possibility of future changes still concerns many business owners. If you have questions about how these developments might impact your company, it is essential to consult a Milwaukee, WI business law attorney.

Why Did the FTC Try to Ban Noncompete Agreements?

In January 2024, the FTC proposed a nationwide ban on noncompete agreements. The agency's decision was driven by concerns that these agreements unfairly restrained workers from pursuing new job opportunities. The FTC argued that noncompete contracts suppress wages and limit competition, affecting approximately 30 million workers in the U.S. The proposed ban aimed to increase job mobility and wages, which the FTC believed would result in a more competitive and dynamic labor market.

However, opponents argue that the FTC does not have the authority to impose such a sweeping ban. Noncompete agreements have historically been governed by state laws, reflecting local economic conditions and business practices. Critics say that decisions regarding noncompetes should remain within the domain of state governments, rather than being dictated by a federal agency.

How Did a Texas Judge Block the FTC’s Ban on Noncompete Agreements?

In mid-2024, a federal judge in Texas blocked the FTC’s attempt to ban noncompete agreements nationwide. The court ruled that the FTC overstepped its regulatory authority, arguing that the agency cannot nullify private contracts across the entire country without explicit authorization from Congress. This decision reaffirmed that employment contracts, including noncompetes, fall under the jurisdiction of state law, not federal oversight.

For businesses that rely on noncompetes to protect their interests, this ruling was a relief. However, the legal battle is ongoing, and the FTC could appeal the decision or seek legislative support to implement the ban.

What Do These Changes Mean for Wisconsin Business Owners?

For business owners in Wisconsin, the Texas court's ruling means that noncompete agreements remain enforceable, but the legal landscape could continue to evolve. Wisconsin law still governs noncompete agreements, and employers must ensure their contracts comply with state regulations. Wisconsin law allows noncompete agreements as long as they are reasonable in scope, duration, and geography and are necessary to protect legitimate business interests, such as trade secrets or customer relationships.

It is essential for Wisconsin employers to regularly review their noncompete contracts to ensure they meet the state’s legal requirements, especially given the uncertainty surrounding the FTC’s future actions.

What Makes a Strong, Legal Noncompete Agreement in Wisconsin?

In Wisconsin, noncompete agreements must meet specific requirements to be legally enforceable. According to Wisconsin Statute 103.465, these agreements must be:

• Necessary to protect a legitimate business interest: The agreement should be designed to protect things like trade secrets, confidential information, or customer relationships.

• Reasonable in time and geography: The duration of the restriction and the geographic area it covers must be reasonable and specific. For example, restricting a former employee from working in a competing business for five years might be considered excessive, while a one- or two-year restriction could be seen as more reasonable.

• Not overly restrictive: The agreement should not unnecessarily limit the employee’s ability to find work or make a living. The terms must balance the business's interests with the employee’s rights.

Wisconsin courts will not enforce noncompete agreements that are overly broad or unreasonable and if one part of a noncompete agreement is unenforceable, courts will throw out the entire agreement. This makes it very important for employers to work with legal counsel to draft or update their noncompete agreements to ensure they comply with these guidelines.

Contact a Milwaukee, WI Employee Contract Lawyer

If you are a business owner in Milwaukee or elsewhere in Wisconsin, understanding the legal requirements for noncompete agreements is crucial for protecting your business while staying compliant with state law. With potential changes on the horizon due to the FTC’s actions, now is the time to review and possibly update your noncompete agreements. Contact a Milwaukee, WI business law attorney at Gimbel, Reilly, Guerin & Brown, LLP for guidance on drafting enforceable contracts and protecting your business interests. Call 414-271-1440 today to schedule a consultation.