Wisconsin Supreme Court Strikes Down "No-Hire" Provision Governing Temporary Employees


Companies in service industries who provide employees working on site at client companies face an inherent business risk: that their customers will hire the servicing employees directly and cut the company providing the labor in the first place out of the loop. Such companies often try to protect their investment in recruiting and training their employees by requiring the clients with whom their employees work to sign "no-hire" agreements. Under this type of agreement, a client company agrees not to hire employees assigned to it for some reasonable period of time after its contract with the company providing those employees ends.

No Hire Agreements

"No hire" agreements have come under scrutiny because of their effect on individual employees, who are essentially bound - or at least greatly affected - by a contract to which they were never a party and which they may not have even known existed. The Wisconsin Supreme Court recently weighed in on this issue in the case of Heyde Companies v. Dove Health Care Inc. (decided 12/20/02), finding that many such "no hire" agreements are not enforceable. The Court offered an alternative for protecting one's employee base: the use of reasonably drafted non-compete agreements with the affected employees themselves.

In a 7-2 decision, the Wisconsin Supreme Court ruled that the contract clause was governed by Wisconsin's strict requirements for covenants not to compete and was unenforceable as such a covenant. To stand up under Wisconsin non-compete law, the agreement had to be necessary for the protection of Greenbriar, a company owned by Heyde Companies. It also had to be reasonable as to time, reasonable as to geographic scope, not unduly harsh, and not against public policy.

The Court concluded that Greenbriar's contract failed as a reasonable non-compete on multiple counts. The no hire clause was overly broad (and therefore void) because it covered all Greenbriar therapists (rather than being limited to just those therapists who provided services to Dove). But what really seemed to drive the Court's decision was the very concept of a "no-hire" provision. The Court found that because the former Greenbriar therapists hired by Dove were essentially bound to an agreement to which they had not been a party, such a clause was unnecessary for the protection of Greenbriar, overly harsh to the affected employees, and against public policy.

Non-Compete Agreements

Companies that want to guard against having their clients or customers hire away their employees would be well advised to use non-compete agreements with the employees they wish to protect rather than (or in addition to) no-hire agreements with the clients against whom they may need such protection. Wisconsin law requires non-competes to be reasonably tailored to protect the interest at stake, and a whole body of case law exists defining what is and is not a reasonably drafted non-compete agreement in terms of time, geographic scope and activities proscribed.

Generally speaking, a non-compete agreement with an employee having a close relationship with a client customer should be drafted to prevent the employee from exploiting that relationship by working for or establishing a direct business relationship with the client, but it should go no further. Generic non-compete forms are likely to be outdated and unenforceable.

Summary

For those employers using workers provided by a service company, the Heyde decision is not an open invitation to rip up any no-hire agreement you have signed while hiring all the workers you would like from that service company. Although the Wisconsin Supreme Court invalidated the no-hire provision in Heyde itself, it reached its decision by relying heavily on the affected employees' lack of consent. If the workers placed at your company are aware of a no-hire clause between you and the service company with whom you contract, those employees may very well remain restricted from accepting employment at your company.