On April 30, 2015, the Wisconsin Supreme Court decided Runzheimer International, LTD. V. Friedlen, 2015 WI 45, 362 Wis.2d 100, 862 N.W. 2d 879 and held that an employer may condition the continued employment of an employee on the employee signing a restrictive agreement, such as a non-compete.  The decision helps to clarify what constitutes adequate consideration for an employee entering into a restrictive covenant with their employer.  However, the Court did not address whether the agreement was reasonable.

In Runzheimer the employee, Friedlen, was required to sign an agreement which included confidentiality and non-compete provisions (the “Agreement”).  Friedlen had been an employee of Runzheimer for more than 15 years before he was asked to sign the Agreement.  Friedlen was given two weeks to review the Agreement.  If he did not sign the Agreement, then he would be fired.

Friedlen signed the Agreement and remained employed by Runzheimer until his termination, 29 months later.  Following his termination, Friedlen sought employment with a competitor of Runzheimer.  Friedlen was offered a position with the competitor and accepted the position after his attorney concluded that the Agreement was unenforceable.  Runzheimer filed suit against Friedlen for breaching the Agreement and Friedlen moved to dismiss Runzheimer’s claims.

The issue on appeal was whether the promise of continued employment, with no definite continuation period, of an existing at-will employee constituted valid consideration for a restrictive agreement.  In other words, under such circumstances, is an employee actually receiving a benefit in exchange for signing the restrictive agreement?

The Court unambiguously held that a promise of continued employment to a current at-will employee was sufficient to constitute valid consideration for entering into a restrictive agreement.  The Court concluded that Runzheimer’s promise not to terminate Friedlen upon the expiration of the two week review period, so long as the Agreement was signed by Friedlen, was valid consideration.  In fact, Runzheimer performed under the Agreement “immediately when it forbore its legal right to fire Friedlen at that time.”  Forbearance in exercising a right, in this case the right to terminate without cause, constitutes valid consideration.

While the decision clarifies the consideration issue under such circumstances, employers should still exercise caution under such arrangements.  This is especially true if an employee is terminated shortly after signing a restrictive agreement or there exists evidence of the employer’s intent to terminate the employee regardless of whether the employee signs the restrictive agreement.

It is also important to emphasize that the Court did not address the reasonableness of the Agreement.  Even when the elements of contract formation are met, a restrictive agreement can still be found unenforceable if it is determined that the restrictions do not pass Wisconsin’s reasonableness test.

By Attorney Nicholas J. Vlies of Lin.Liebmann LLC

On July 6, 2015 the Wage and Hour Division of the Department of Labor issued a proposed rule that, among other things, seeks to change the minimum salary an employee must be paid to qualify as an exempt executive, administrative or professional (“EAP”) employee.  If an employee meets the EAP exemption criteria, then the employer is not required to pay that employee for overtime.

As it stands, the minimum weekly salary to qualify for the EAP exemption rate is $455 per week.  The proposed rule seeks to change the minimum salary to the 40^th percentile of full-time salaried employees, which based on 2013 salary data is $921 per week and $970 per week ($50,440 per year) based on projected 2016 salary data.  Moreover, the minimum salary would automatically adjust each year.  The Department of Labor has proposed two possible methods to update the minimum salary automatically each year.  The first method pegs the minimum salary to the 40^th percentile of full-time salaried employees.  The second method adjusts the minimum salary based on inflation.

Additionally, the Department of Labor is considering whether nondiscretionary bonuses should be included in calculating the EAP exemption salary threshold.  In the event that the Department decides to include nondiscretionary bonuses, the bonuses would only be permitted to account for 10% of the minimum salary level.  For example, if the minimum salary to qualify as an exempt EAP employee is $50,000 per year, nondiscretionary bonuses would only be able to account for $5,000 of the $50,000 threshold.  Moreover, if discretionary bonuses are included, then payment of such bonuses will likely be required on a monthly or more frequent basis.   At this point in time the Department of Labor is not considering the inclusion of discretionary bonuses in calculating the total salary for EAP exemption purposes.  The Department is also not considering the inclusion of annual catch-up payments.

The proposed rule also aims to increase the salary level to qualify for the highly compensated employees (“HCE”) exemption.   Currently the HCE exemption salary threshold is $100,000.00 per year, but the proposed rule would increase the threshold to a salary equal to the 90^th percentile of earnings for full-time salaried workers.  Based on the 2013 salary data, the HCE exemption salary threshold would be $122,148 annually.  One of the two automatic update methods mentioned above would be used to update the HCE exemption salary threshold annually.

Employers still have time to plan for the adjustments that will be necessary in light of the proposed changes as the final rule will likely not be published until sometime in 2016.  While the final rule could differ from the proposed rule, employers would be wise to begin planning for significant changes in 2016.

If you have any questions regarding the proposed rule feel free to call us at 920-393-1190.

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We have added consumer pamphlets from the State Bar of Wisconsin to the Estate Planning section of our website regarding both Marital Property and Wills/Estate Planning. These pamphlets are available to help you find answers to legal issues and are written in easy-to-understand language. These are PDF files, so you will require Adobe Acrobat Reader to open them. Read More