Because non-solicitation agreements are restrictive covenants in restraint of trade, they are disfavored by law. This is the case in many states, including Illinois and Wisconsin. The U.S. District Court for the Eastern District of Wisconsin took up this issue when plaintiff, SYSCO Food Services of Eastern Wisconsin, LLC ("SYSCO") sued its former employees who had signed identical employment agreements. The agreements provided, in pertinent part, that for a period of twelve months following termination or cessation of their employment, defendants would be restrained from directly or indirectly engaging in any of the following activities with respect to any product or service sold by SYSCO or similar to or competitive with a product or service sold by SYSCO:
In any area, solicit, sell to, or contact with a view to selling any such product or service, any person, firm, or company from whom [defendants] solicited any order or to whom [defendants] sold any product or service or otherwise dealt with on behalf of [SYSCO] at any time during the year preceding termination or cessation of [defendants'] employment with [SYSCO].
According to the allegations in SYSCO's complaint, after the defendants started working for one of its competitors, they contacted each other's former SYSCO customer accounts in an "account swapping" scheme. SYSCO considered this to be violative of the above-referenced non-solicitation clause. SYSCO filed a motion for preliminary injunction while the defendants filed a motion to dismiss.
Citing from prior authority, the district court first determined that for a covenant not to compete to be valid in Wisconsin it must: "(1) be necessary for the protection of the employer or principal; (2) provide a reasonable time restriction; (3) provide a reasonable territorial limit; (4) not be harsh or oppressive to the employee; and (5) not be contrary to public policy." The court then proceeded to dissect the non-solicitation covenant, applying the five factors above.
First, the phrase "[i]n any area" at the beginning of the covenant appears to imply any geographic area. While the lack of a territorial limitation does not by itself automatically invalidate an otherwise narrowly tailored restrictive covenant, it nonetheless factors against a finding of validity. Secondly, the non-solicitation covenant prohibits conduct not only with SYSCO's customers, but also with anyone with whom the defendants attempted to do business on behalf of SYSCO, i.e. from whom they solicited an order, whether or not such persons actually became customers. Finally, the non-solicitation covenant includes a catch-all provision that prohibits the defendants from soliciting, selling to, or contacting with a view to selling any product or service to a party with whom the defendants "otherwise dealt with on behalf of [SYSCO]."
The district court, acknowledging that restrictive covenants must be liberally construed in favor of employees, held that, on its face, the language in the covenant violated all but the "reasonable time restriction" requirement. The language served not to protect SYSCO's legitimate business interests, but rather to prohibit ordinary competition and to unnecessarily restrict the defendants' employment opportunities. The court, therefore, denied SYSCO's motion for preliminary injunction and dismissed all of the counts in SYSCO's complaint that depended on the enforceability of the non-solicitation covenant.
Comment: As an employer, one must make certain that employee agreements are narrowly tailored as necessary to protect a legitimate business interest of the employer, but not unnecessarily restrictive of the employee's future business opportunities. It is always best to seek counsel in drafting such documents.
SYSCO Food Services of Eastern Wisconsin, LLC v. Ziccarelli, 2006 WL 2465955 (E.D. Wis., Aug. 28, 2006).
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