Business buyer can’t enforce noncompete against sellers’ son

Each state has its own rules about the enforceability of employee noncompetition agreements. Employers must draft their covenants in compliance with the rules or risk getting an agreement that’s unenforceable under state law. A Wisconsin business buyer recently learned that lesson the hard way when it tried, and failed, to enforce a noncompliant noncompete agreement against a former key employee.

Facts

Auto-Chlor manufactures, rents, and sells sanitizing and washing equipment, chemical dispensers, linen washing chemicals, and other materials for sanitizing and washing eating utensils and cleaning linen. In mid-2016, it purchased a competing business named B&E Services, which was then owned by Brian and Elizabeth Ehlert. The sellers’ son, Doug Ehlert, was a key employee of their company.

On the same day Auto-Chlor and the sellers executed an asset purchase agreement for the sale of the business, they signed a separate noncompete. Among other things, the agreement stated the sellers’ son was required to sign the noncompete as a condition for the buyer to enter into the asset purchase agreement and as a condition for his subsequent employment with the new business.

The noncompete agreement restricted the son from competing against Auto-Chlor for a period of five years after the asset sale was completed. He started working for the new owner shortly after the sale transaction but promptly ended his employment in December 2016.