FREQUENTLY ASKED QUESTIONS ABOUT EMPLOYMENT AGREEMENTS, NON-COMPETE AGREEMENTS, AND SEVERANCE AGREEMENTS
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
I. Employment Agreements in General
Generally speaking, what are the requirements to have a valid employment agreement?
Like any other contract, an employment agreement generally requires an offer, acceptance of the offer, and "consideration," meaning something of value. The consideration may consist of mutual promises between the parties. Certain types of employment agreements, such as a non-compete agreement, require additional terms or limitations to be enforceable.
Is there any legal requirement that an employee have a written agreement with his or her employer?
Many employer-employee relationships exist without written agreements. Wisconsin follows the "employment at will" doctrine, meaning that employees can normally be terminated for any lawful reason unless the parties have agreed to a specific term of employment. If an employer or employee wants to negotiate a fixed term of employment with specific circumstances under which the employee can be terminated prior to the end of the term, those terms should be reduced to writing. An employment agreement should also be in writing if the employer wants to protect confidential information or restrict the employee’s ability to compete against the employer in the future.
II. Non-Compete Agreements/Restrictive Covenants
What is a "restrictive covenant"?
A restrictive covenant is sometimes referred to as a non-compete agreement. It is a limitation that attempts to prohibit an employee from competing with the employer during and following the conclusion of the employee’s work with their current employer.
Are non-compete agreements enforceable in Wisconsin?
Yes, non-compete agreements may be enforced in Wisconsin. However, if the agreement contains terms that are overly broad or not reasonably necessary for the protection of the employer, the agreement may be declared unenforceable. The enforceability of a non-compete agreement as to a particular employee will be determined on a case-by-case basis. Courts attempt to balance the employer’s desire to protect its investment with employees’ need to earn a living. The rules regarding the enforceability of non-compete agreements in Wisconsin are in large part set forth in appellate court decisions issued by the Wisconsin Court of Appeals and Wisconsin Supreme Court. Because the analysis of enforceability is dependent on the facts and determined on a case-by-case basis, it is advisable to consult with an attorney who works with non-compete agreements to address issues of enforceability.
What interests may an employer attempt to protect through a non-compete agreement?
Employers often want to protect their interest in customer relationships and information developed through their business operations. For example, an employer may want to limit a former employee’s ability to solicit business from the employer’s customers in light of the working relationship and goodwill generated between the employee and customers while working for the employer. An employer might also want to prevent a former employee from using the employer’s confidential or proprietary information to compete with the employer while working for another employer. Wisconsin courts have generally determined those types of business interests are worthy of reasonable protection.
What types of limitations in a non-compete agreement are considered unreasonable?
The reasonableness of a non-compete agreement will be determined based on the individual circumstances of the particular employer and employee. Restrictions on subsequent employment that are overly broad, too long in time, too broad geographically, or which go beyond what is reasonably necessary for the protection of the employer in light of the employee's position, are examples of restrictions that may be deemed unenforceable. Questions regarding the enforceability of a particular restriction or covenant should be addressed with a qualified attorney.
Can a non-compete agreement be enforced even if I signed it after I begin my employment?
Yes, depending on the circumstances. Continued employment may in some cases constitute sufficient consideration in Wisconsin for purposes of a non-compete agreement.
Can a non-compete agreement prevent me from starting up my own business?
Many non-compete agreements are drafted so as to prevent the employee from going into competition with his or her former employer, in addition to preventing the employee from going to work for an existing competitor. Concerns about the ability to start up a new business should be considered and discussed with a qualified attorney before entering into the non-compete agreement.
What will happen if an employee breaches a non-compete agreement?
Non-compete agreements often specify the potential remedies available to the employer in the event of a breach by the employee. These remedies usually include the ability to seek an injunction in court which would prevent the employee from going to work for a competitor or starting up their own competing business. The employer also may be entitled to money damages if the employee’s breach resulted in lost revenue. The employee may deny that a breach occurred or that the non-compete agreement is enforceable, and if there is a dispute on those subjects, a court would decide that issue. Alternatively, the employer and employee may negotiate a settlement of their dispute to avoid the cost and uncertainty of litigating the issue.
III. Severance Agreements
When an employee is terminated, is he or she entitled to some form of severance payment from the employer?
This will depend on your employer and the circumstances of your employment. Some employment contracts provide for severance pay. Some companies have policies offering severance packages to terminated employees, the size of which will depend on factors such as the length of employment. Some employers do not have a specific policy on severance packages but may offer a package in an effort to avoid future post-termination claims such as discrimination or wrongful termination claims. An employer would likely notify the employee around the time of termination if it intends to offer a severance package.
Are severance packages negotiable?
Some employers have specific packages they will offer to terminated employees and will not negotiate the substantive terms. Other employers will extend a severance package offer but may be willing to increase the proposed terms of the offer, depending on the circumstances.
How long will an employee have to accept a severance offer?
The severance offer will usually notify the employee of the deadline to accept the offer. Some severance offers will be available for at least 21 days to ensure compliance with legal requirements relating to waiver of age discrimination claims.
Does an employee have to agree not to sue the employer in order to receive a severance package?
Many severance packages will include provisions that require the employee to agree to waive the right to pursue certain claims against the employer. Before signing any severance agreement, employees are strongly encouraged to consult with an attorney to review the terms and to determine the potential value of any claims which would be waived under the agreement.
Do severance packages normally include any other concessions by the employee?
Besides a waiver of claims, many employers will also require that the employee keep the terms of the severance package confidential, and that the employee agree not to disparage the employer in public or private communications, including social media. The employee may also be asked to return any company property and to confirm the terms of any non-compete or confidentiality agreement that the employee entered into prior to or during the course of employment.
When will the employee begin receiving severance payments, and are those payments subject to payroll taxes?
The severance agreement will usually specify the date(s) on which any severance payments will be issued. Some payments are issued as lump sums, while others are issued periodically, such as on the employee’s normal pay dates. Most severance agreements anticipate that payments will likely be viewed by taxing authorities as taxable income and therefore withhold customary payroll taxes from any severance payments.
Will an accepted severance agreement become a public record or be filed in a court?
Typically not, unless the employer and employee have some future dispute about a violation of the terms of the severance agreement, such as the employer’s failure to make a required payment or the employee attempting to pursue a claim that was waived under the agreement. Some severance agreements include provisions requiring that they be maintained as confidential.
If a severance agreement does not address an issue that an employee considers important, what should the employee do?
When a severance agreement is signed, that document normally becomes the entire agreement between the employer and employee and will not usually be amended. Therefore, employees are strongly encouraged to consult with an attorney prior to signing a severance agreement, particularly if there are any issues that the employee considers unresolved. An attorney can address the concerns with the employee, and negotiate with the employer to have the issue addressed in the severance agreement before it is signed by the parties.
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
I. Employment Agreements in General
Generally speaking, what are the requirements to have a valid employment agreement?
Like any other contract, an employment agreement generally requires an offer, acceptance of the offer, and "consideration," meaning something of value. The consideration may consist of mutual promises between the parties. Certain types of employment agreements, such as a non-compete agreement, require additional terms or limitations to be enforceable.
Is there any legal requirement that an employee have a written agreement with his or her employer?
Many employer-employee relationships exist without written agreements. Wisconsin follows the "employment at will" doctrine, meaning that employees can normally be terminated for any lawful reason unless the parties have agreed to a specific term of employment. If an employer or employee wants to negotiate a fixed term of employment with specific circumstances under which the employee can be terminated prior to the end of the term, those terms should be reduced to writing. An employment agreement should also be in writing if the employer wants to protect confidential information or restrict the employee’s ability to compete against the employer in the future.
II. Non-Compete Agreements/Restrictive Covenants
What is a "restrictive covenant"?
A restrictive covenant is sometimes referred to as a non-compete agreement. It is a limitation that attempts to prohibit an employee from competing with the employer during and following the conclusion of the employee’s work with their current employer.
Are non-compete agreements enforceable in Wisconsin?
Yes, non-compete agreements may be enforced in Wisconsin. However, if the agreement contains terms that are overly broad or not reasonably necessary for the protection of the employer, the agreement may be declared unenforceable. The enforceability of a non-compete agreement as to a particular employee will be determined on a case-by-case basis. Courts attempt to balance the employer’s desire to protect its investment with employees’ need to earn a living. The rules regarding the enforceability of non-compete agreements in Wisconsin are in large part set forth in appellate court decisions issued by the Wisconsin Court of Appeals and Wisconsin Supreme Court. Because the analysis of enforceability is dependent on the facts and determined on a case-by-case basis, it is advisable to consult with an attorney who works with non-compete agreements to address issues of enforceability.
What interests may an employer attempt to protect through a non-compete agreement?
Employers often want to protect their interest in customer relationships and information developed through their business operations. For example, an employer may want to limit a former employee’s ability to solicit business from the employer’s customers in light of the working relationship and goodwill generated between the employee and customers while working for the employer. An employer might also want to prevent a former employee from using the employer’s confidential or proprietary information to compete with the employer while working for another employer. Wisconsin courts have generally determined those types of business interests are worthy of reasonable protection.
What types of limitations in a non-compete agreement are considered unreasonable?
The reasonableness of a non-compete agreement will be determined based on the individual circumstances of the particular employer and employee. Restrictions on subsequent employment that are overly broad, too long in time, too broad geographically, or which go beyond what is reasonably necessary for the protection of the employer in light of the employee's position, are examples of restrictions that may be deemed unenforceable. Questions regarding the enforceability of a particular restriction or covenant should be addressed with a qualified attorney.
Can a non-compete agreement be enforced even if I signed it after I begin my employment?
Yes, depending on the circumstances. Continued employment may in some cases constitute sufficient consideration in Wisconsin for purposes of a non-compete agreement.
Can a non-compete agreement prevent me from starting up my own business?
Many non-compete agreements are drafted so as to prevent the employee from going into competition with his or her former employer, in addition to preventing the employee from going to work for an existing competitor. Concerns about the ability to start up a new business should be considered and discussed with a qualified attorney before entering into the non-compete agreement.
What will happen if an employee breaches a non-compete agreement?
Non-compete agreements often specify the potential remedies available to the employer in the event of a breach by the employee. These remedies usually include the ability to seek an injunction in court which would prevent the employee from going to work for a competitor or starting up their own competing business. The employer also may be entitled to money damages if the employee’s breach resulted in lost revenue. The employee may deny that a breach occurred or that the non-compete agreement is enforceable, and if there is a dispute on those subjects, a court would decide that issue. Alternatively, the employer and employee may negotiate a settlement of their dispute to avoid the cost and uncertainty of litigating the issue.
III. Severance Agreements
When an employee is terminated, is he or she entitled to some form of severance payment from the employer?
This will depend on your employer and the circumstances of your employment. Some employment contracts provide for severance pay. Some companies have policies offering severance packages to terminated employees, the size of which will depend on factors such as the length of employment. Some employers do not have a specific policy on severance packages but may offer a package in an effort to avoid future post-termination claims such as discrimination or wrongful termination claims. An employer would likely notify the employee around the time of termination if it intends to offer a severance package.
Are severance packages negotiable?
Some employers have specific packages they will offer to terminated employees and will not negotiate the substantive terms. Other employers will extend a severance package offer but may be willing to increase the proposed terms of the offer, depending on the circumstances.
How long will an employee have to accept a severance offer?
The severance offer will usually notify the employee of the deadline to accept the offer. Some severance offers will be available for at least 21 days to ensure compliance with legal requirements relating to waiver of age discrimination claims.
Does an employee have to agree not to sue the employer in order to receive a severance package?
Many severance packages will include provisions that require the employee to agree to waive the right to pursue certain claims against the employer. Before signing any severance agreement, employees are strongly encouraged to consult with an attorney to review the terms and to determine the potential value of any claims which would be waived under the agreement.
Do severance packages normally include any other concessions by the employee?
Besides a waiver of claims, many employers will also require that the employee keep the terms of the severance package confidential, and that the employee agree not to disparage the employer in public or private communications, including social media. The employee may also be asked to return any company property and to confirm the terms of any non-compete or confidentiality agreement that the employee entered into prior to or during the course of employment.
When will the employee begin receiving severance payments, and are those payments subject to payroll taxes?
The severance agreement will usually specify the date(s) on which any severance payments will be issued. Some payments are issued as lump sums, while others are issued periodically, such as on the employee’s normal pay dates. Most severance agreements anticipate that payments will likely be viewed by taxing authorities as taxable income and therefore withhold customary payroll taxes from any severance payments.
Will an accepted severance agreement become a public record or be filed in a court?
Typically not, unless the employer and employee have some future dispute about a violation of the terms of the severance agreement, such as the employer’s failure to make a required payment or the employee attempting to pursue a claim that was waived under the agreement. Some severance agreements include provisions requiring that they be maintained as confidential.
If a severance agreement does not address an issue that an employee considers important, what should the employee do?
When a severance agreement is signed, that document normally becomes the entire agreement between the employer and employee and will not usually be amended. Therefore, employees are strongly encouraged to consult with an attorney prior to signing a severance agreement, particularly if there are any issues that the employee considers unresolved. An attorney can address the concerns with the employee, and negotiate with the employer to have the issue addressed in the severance agreement before it is signed by the parties.