Non-Disclosure and Non-Compete Agreements in Wisconsin

PROTECTING CONFIDENTIAL BUSINESS INFORMATION IN WISCONSIN

There is an ugly rumor floating around the Wisconsin business community - that non-disclosure and non-compete agreements are not worth the paper they are written on. The rumor is not true. Carefully drafted agreements complying with Wisconsin statutory provisions are enforceable and very useful. This article will specifically address protecting confidential information under Wisconsin law.

There are typically two ways to protect confidential business information. The first is to have in place valid non-disclosure agreements with employees who have access to the information. Such non-disclosure agreements, as well as non-compete agreements, are governed by Wis. Stat. § 103.465. See Ward v. NTS 212 Wis. 2d 240 (Ct. App. 1997). This statute states that such restrictive covenants must be reasonably necessary for the protection of the employer; and if the agreement unreasonably restrains trade, the entire agreement will be deemed void.

This does not mean that employers cannot have valid non-disclosure and non-compete agreements! It does mean, however, that care must be used when drafting these provisions. Such care includes: (1) providing for reasonable time and geographical restrictions, (2) not including terms that are harsh and oppressive, and (3) supporting the agreement with valid consideration. Two areas where we see the most mistakes when reviewing such agreements are: (1) the confidentiality and non-disclosure provisions do not have time and/or geographical restrictions, and (2) invalid consideration. If you have non-disclosure and/or non-compete agreements, it is a good idea to review them periodically. Remember that while an agreement drafted several years ago may have been valid then, the case law in this area has changed and keeps evolving.

The second, and tougher way to protect confidential business information is by use of the Wisconsin Uniform Trade Secrets Act (the "Act"), Wis. Stat. § 134.90. The Act defines "trade secrets" as information which derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use. Additionally, for information to be deemed a "trade secret," it must be the subject of reasonable efforts to maintain its secrecy. Such efforts include keeping information under lock and key, disclosing such information only to those who are on a need to know basis, and protecting such information with the use of valid non-disclosure agreements. Under the Act it is unlawful to improperly disclose, acquire or use trade secret information. The statute provides for, among other things, injunctive relief, punitive damages and attorneys' fees.

Imagine the worst case scenario - a key employee who has knowledge of the company's most treasured secrets (customer lists, pricing, marketing plans, formulas) leaves to take a better monetary offer with a competitor. What have you done to protect your company? As companies become more and more dependent upon confidential information to take larger shares of the marketplace, they must also take steps to properly protect secret information through the use of well-drafted non-disclosure and non-compete agreements.

Posted from Focus on Wisconsin Labor & Employment Law Developments dated October 1998