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Wisconsin Business Law Blog

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The Secret is Out: Congress Enacts Federal Trade Secret Law to Protect American Businesses

Posted in Business Litigation, Buying, Owning and Selling a Business, Labor & Employment, News and Recent Decisions, Noncompete Agreements, Operating a Business

top secretA long awaited Federal Law on trade secret misappropriation was signed into effect last month. The new law, titled the Federal Defend Trade Secrets Act, or “DTSA”, creates a Federal cause of action for businesses who own trade secrets against individuals who have misappropriated the business’ confidential information. The law creates a uniform definition of
trade secret; a definition that currently differs from state to state, and that has made litigation difficult for businesses with multi-state presences.

Many businesses’ livelihoods depend upon protection of trade secrets. Trade secrets include secret formulas, designs, ideas, and other forms of intellectual property that are the basis for the business’ competitive advantage in their particular market.  While other type of intellectual property like trademarks, patents, or copyrights require publicizing the particular information to mark it as the business’ own property, publicity of a trade secret risks hindering the business’ competitive advantage, giving the business incentive to keep that trade secret, a secret! A couple famous examples of trade secrets that are currently utilized by American companies are Coca-Cola’s formula for Coke, and Google’s search algorithm.

Of course, without protection of trade secret laws, businesses’ risk their trade secrets falling into the wrong hands. Necessarily, employees, independent contractors, and other individuals often become aware of trade secrets when becoming involved with a particular business. Because these individuals could exploit those trade secrets for their own gain, many states, including Wisconsin, have devised their own trade secret misappropriation laws to give businesses a right to recover damages from a person who gained access to the trade secret and then exploited it for his or her own benefit. However, with the increased nationalization (and indeed globalization) of the modern marketplace,  businesses should welcome a uniform definition of trade secret and a uniform forum in Federal Court for litigating trade-secret misappropriation. These changes in the DTSA ease the procedural and financial burdens that accompany state court trade secret litigation.

What this means for your business

One particularly important section in the DTSA is one affecting confidentiality agreements in business contracts, whether they be between the business and its employees, or between the business and independent contractors. The section requires that, as of May 16, 2016, in order for a business to have the full protection of the DTSA, any agreement regarding trade secrets must provide a specific notice to individuals signing those agreements of their rights and protections as whistleblowers in particular types of trade secret cases.

This recent development in trade secret law demonstrates the importance of keeping your business apprised and compliant with the latest changes to the legal landscape. Whether your business’ confidentiality agreements need review, updating, or need to be drafted in the first place, or if you have a former employee or contractor who you believe misappropriated your trade secrets, contact one of our business attorneys at Schober Schober & Mitchell, S.C. to discuss how we can help.

Interns: To Pay or Not to Pay, That is the Question

Posted in Buying, Owning and Selling a Business, Labor & Employment

Many businesses, including law firms and accounting firms, employ interns over the summer. There are a number of reasons such an arrangement works for both sides.

For the business, interns provide bodies that can fill voids in the work staff, since many people center their vacations over the summer. The internship also provides the business with an opportunity to get to know a prospective employee, creating a source of qualified future applicants. For some businesses, interns perform tasks that result in a positive cash flow for the company!

From the intern’s standpoint, the internship provides the coveted “experience” factor which enhances one’s resume. It provides a look into a company to see the company’s culture and determine whether it is a place the intern may be interested in working after graduation. For paid interns, it provides needed spending money, helping loosed the belt on a typically tight student budget.

DOL Position

Balancing the above factors has resulted in a mixed bag as far as internships are concerned: some are paid and some are unpaid. The real question here though is, “how does the government look at this? The Department of Labor leans toward paid internships. The DOL has developed a 6 part test:

The following six criteria must be applied when making this determination:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern.  This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad.

Final Thoughts

In a second circuit court of appeals case from 2015 (Glatt et al. v. Fox Searchlight Pictures et al.), the court ignored the above 6 part test and instead looked at “which party was the primairy beneficiary of the arrangement.”

With this matter now clouded, it would definitely pay to consult with a knowledgable attorney as to how to treat the compensation issue, as far as interns are concerned. We, at Schober Schober & Mitchell, S. C. would be glad to assist with any such problems.

Buyer Beware? Wisconsin Court says “Not So Fast!”

Posted in Other Legal Issues, Real Estate

Spring is almost here, and that means real estate sales in Wisconsin will soon be picking up! With that in mind, a recent Wisconsin Court of Appeals decision may have a large impact on future Wisconsin real estate transactions. In Fricano v. Bank of America, the Wisconsin Court of Appeals found that a buyer of a home had a valid fraudulent misrepresentation claim against a seller despite the fact that their purchase contract contained an “as-is” clause.

“As-is Clause”

“As-is” clauses are frequently used in real estate transactions to allow a seller to avoid liability coming from a buyer, usually when hidden defects are discovered after the sale closes. However, in Fricano, the sales contract also had a clause that stated the seller had “little to no direct knowledge about the condition of the property,” when in fact, the evidence showed that the seller had knowledge of a severe mold problem that had resulted from flooding of the home. The Wisconsin Court of Appeals found that where there is a deceptive affirmative representation, like the one the seller made in Fricano, an “as-is” clause cannot preclude the seller’s liability for fraudulent misrepresentation. Where there is evidence that a seller knew of a material adverse condition, it has a duty to disclose that to the potential buyer. The case is now being appealed to the Wisconsin Supreme Court.

This case demonstrates the importance of having well-drafted real estate documents and effective legal representation when you are buying or selling property. Whether you’re looking to buy or sell, consult an attorney at Schober Schober & Mitchell, S.C. to ensure your transaction goes smoothly.

This post is being submitted with the substantial research and writing help of Jeremy Klang, 3rd year senior at Marquette University Law School.

Fifth Circuit Rules that a C-Corporation’s S-Corp Affiliate’s Rents Cannot be Classified as Passive Income (Section 469)

Posted in Business Formation, News and Recent Decisions, Operating a Business, Real Estate, Tax

A Federal Appeals Court ruled earlier this month that an S-Corporation’s rental income from a leairs[1]se agreement with a C-Corporation with entirely common ownership with the S-Corp, could not be classified as passive activity income, and therefore could not offset the individual’s passive activity losses.

Internal Revenue Code section 469 was passed in the 1980s to close a tax code loophole that allowed investors to invest in real estate ventures that were likely to incur heavy losses in order to offset an individual’s income. The section requires that for trades or businesses in which an individual does not materially participate, the income or loss from that activity must be classified as “passive” and therefore can only be offset against income or loss from other “passive activities.” The section specifically lists individuals, estates, trusts, closely held C corporations, and personal service corporations as taxpayers that are subject to the passive activity re-characterization rule. The section does not, however, list S-Corporations as a taxpayer that is subject to this rule.

Where an individual has losses from passive activities in a particular year, the individual can only offset that against passive income, or else be forced to roll over the losses into future years in which the individual has passive income. Some individuals had attempted to “create” passive income by engaging in what is known as “self-renting.” Self-renting occurs where a business owner creates another legal entity that the owner also owns, transfers title of business real estate to that entity, and then leases back the business real estate to the originally owned business. This way, there is rental income, (which is always classified as passive) that passes through to the individual, who can then offset her passive losses with that passive income. The IRS prohibited this practice in one of its regulations, stating that where this type of arrangement is present, the rents are then changed back from passive income, to non-passive income, thereby disallowing the offset against passive losses.

While the self-renting practice has been prohibited in the IRS regulations since the enactment of section 469, there has been no binding judicial authority that has ruled that the rule applies where an S-Corporation is the taxpayer receiving the rental income. The IRS has released some memos on the subject, which only evidence the opinion of the IRS, and not the binding interpretation of a neutral judge. In Williams v. CIR, the taxpayers were owners of both a C-Corporation, the lessee, and an S-Corporation, the lessor. They argued that because S-Corporations are not listed as taxpayers subject to section 469, and because S-Corporations do not pay taxes as an entity, the self-renting rule did not apply. The Fifth Circuit Court of Appeals rejected that argument and upheld an additional IRS regulation that stated that S-Corporations are subject to all section 469 rules (including the self-renting rule). This rule gives significant weight to the self-rental rule as it relates to S-Corporations, and all other pass-through entities (LLC and Partnerships).

Schober Schober and Mitchell stays apprised of updates and changes in tax laws as they relate to you and your business. Please contact us for advice on the tax status of your business or structure and for any of your other business needs.

This article was contributed by Jeremy Klang, a third year law student at Marquette University Law School and law clerk for Thomas Schober.

Crowdfunding Regulations Finally Here!

Posted in Business Formation, Operating a Business

The SEC released its long awaited Final Crowdfunding regulations in late 2015. We wrote on this topic in the Summer of 2014, when Wisconsin had adopted crowdfunding rules that governed only the State of Wisconsin. Under those state laws, while Wisconsin businesses could rely on the SEC’s intrastate exemption from filing with the SEC when engaging in crowdfunding, a Wisconsin business wishing to crowdfund could not do so outside of the state. Now, however, the SEC has made its regulations final, allowing small businesses everywhere to crowdfund not only within their individual state, but also outside of their state. The SEC’s rule also overrules Wisconsin’s crowdfunding rules, so that Wisconsin law can no longer be relied on for crowdfunding offerings.

To be eligible for a crowdfunding public offering under the new SEC rules, your business must satisfy a few conditions:

  • Your business must be a what is called a “non-reporting company”; that is that your company cannot currently be required to file any financial statements with the Securities and Exchange Commission;
  • must be looking to raise less than $1 million over a 12-month period; and
  • must be willing and able to ensure that anyone who purchases equity in your company does not sell their stock in the company for more than one year.

All crowdfunding transactions must also be done through an internet portal intermediary that is registered with the SEC (such as gofundme.com). For those of you who are not only interested in crowdfunding for your business but also interested in investing yourself, the SEC’s rules also regulate how much investors can invest in a company depending on the individual’s income and/or net worth. All individual investors must verify their income and net worth through the intermediary site, so the site must have sufficient mechanisms to ensure that investors are honestly stating their income and/or net worth. The limits are as follows:

If an individual has an income or net worth of under $100,000, the individual can only invest a maximum of the greater of $2,000 or 5% of their annual income or net worth.

If an investor’s net worth and annual income is greater than $100,000, then the maximum an individual can invest is 10% of the lower number between the individual’s net worth and their annual income. For taking into account net worth, the value of one’s personal residence in not taken into account. Additionally, during a 12 month period, no individual investor can invest in more than $100,000 of crowdfunding offerings.

Companies must also disclose certain information to the internet portal so that the portal can provide investors with sufficient information for them to make an intelligent investment. A company offering a crowdfunding opportunity must disclose the following:

  • The price to the public of securities or the method for determining the price of the securities;
  • The target amount your business wishes to raise from the offering;
  • A discussion of the company’s financial condition;
  • If the offering seeks to raise $100,000 or less, the company is only required to provide a financial statement certified to be true and accurate by the principal officer of the company. If the offering seeks to raise more than $100,000, but not more than $500,000, financial statements must be reviewed by an independent accountant. If the offering seeks to raise more than $500,000, but not more than the $1 million cap, the company’s financial statements must be audited by an independent auditor.
  • A description of the business and what the business will use the proceeds for;
  • Information about officers and directors, and also owners of 20% or more of the company;
  • Certain related-party transactions;
  • Companies relying on the crowdfunding exemption are also required to file an annual report with the SEC and provide it to investors.

The crowdfunding exemption offers small businesses an opportunity to raise capital that many small businesses could otherwise not afford due to the complex and costly initial public offering process required by the SEC. However, if your business is interested in crowdfunding, there are still necessary documents and preparation required before you can do so. If you or your business are interested in taking advantage of this new and exciting crowdfunding opportunity, contact Schober Schober & Mitchell, so we can assist you in properly structuring your offering!

[This article is being provided by Jeremy Klang, senior Law Student at Marquette University Law School and Clerk at Schober Schober & Mitchell, S.C.]

Change in Federal Overtime Law on the Horizon

Posted in Labor & Employment, News and Recent Decisions, Operating a Business

Employers, you may soon be required to dish out more overtime pay to your employees. On June 30, 2015, the Department of Labor released their plan to “modernize” the Fair Labor Standards Act’s overtime pay rules for salaried employees. Currently, employers are only required to pay time-and-one-half to “white-collar” salaried employees that make $23,660 or less per year (or $455 or less per week). The change in the law would more than double this salary threshold to require that all salaried “white-collar” employees making less than $50,440 per year must receive time-and-one-half  for overtime hours worked. The Department also proposed that this salary threshold would increase annually to match the consumer price index.

Not all employees making this amount are required to be paid extra for overtime hours, however. Only employees who are in executive, administrative, or professional positions and who are under the salary threshold must receive the additional overtime pay.  Under the current regulations, about 11% of salaried employees are eligible for overtime pay, but this change would increase this to about 40% of the salaried American workforce.  It’s estimated that over 5 million salaried workers currently earn more than the current threshold of $23,660 per year but also earn less than $50,440, entitling those individuals to overtime bonus pay for their overtime hours worked.

Of course, this will come at a cost to employers, forcing businesses who wish to avoid paying their employees time-and-a-half to choose between hiring additional staff to reduce overtime hours for full-time staff, or to pay qualifying employees a salary above the new threshold. It’s projected that the rule change will put an additional $1.2 to 1.3 billion in the pockets of these employees newly eligible for overtime pay. The Department of Labor has provided a site where public commentary can be made on this proposed change, where you can provide your input to the Department of Labor. You can comment online by going to the website, www.regulations.gov and posting on Regulatory Information Number (RIN) 1235-AA11.

Schober Schober & Mitchell, S.C. encourages you to contact us for advice in planning how your business will comply with this proposed rule.

This post was written by our law clerk, Jeremy Klang.

What the Obamacare Ruling Means for Wisconsin

Posted in News and Recent Decisions, Operating a Business

Amid this summer’s flurry of U.S. Supreme Court rulings, the nation’s highest Court has essentially decided the fate of Obamacare. In King v. Burwell, the Court saved the health care reform law by rejecting a challenge that would have essentially dismantled the Affordable Care Act as we know it. After this ruling, the fate of the law is no longer uncertain, meaning compliance may have significant implications for you and/or your business.

King v. Burwell hinged entirely on an interpretation of four seemingly unimportant words in the otherwise lengthy health care reform law; the words “established by the State.” Since the enactment of the Affordable Care Act in 2010, 34 of the 50 U.S states have legally elected to not establish a state funded health care exchange site to provide individuals a place to purchase a now mandated health insurance policy. Wisconsin’s Governor Scott Walker has been outspoken in his decision not to establish a state-run health insurance exchange, and in response to his and other 33 states’ decisions, the Obama administration, through the Department of Health and Human Services, has filled the void by creating federally funded exchange sites in those 34 states. Additionally, to make the cost of health care purchased through an exchange more affordable, the Affordable Care Act allows individuals to receive a tax subsidy if they purchase health insurance through a health care exchange “established by the State,” and if they have a certain income level that qualifies. However, it was unclear whether the ACA’s language allowed a tax subsidy to only those qualified individuals who purchased insurance from one of the 16 exchanges that were established by a “state”, or whether those qualified individuals who purchase insurance from the federally funded exchange can receive this subsidy as well.

The IRS attempted to answer this question through a regulation which ruled that a purchase from either type of exchange—one of the 16 state exchanges, or the federally funded exchange—makes an individual eligible for the tax subsidy. However, this put some individuals between a rock and a hard place. Some individuals have incomes low enough to exempt from Obamacare’s individual mandate to purchase health insurance, but at the same time their income level qualifies them for the tax subsidy. Since they qualify for the tax subsidy, even though they might otherwise be exempted from buying insurance under the individual mandate, the cost reduction for buying insurance from the subsidy, makes them ineligible for the exemption to the individual mandate. They are then required to either buy health insurance or face the tax penalty for not having insurance.

The challengers in King v. Burwell were in this exact position, and argued that they should not be eligible for the subsidy because they lived in Virginia, a state that elected not to establish a state exchange. Their argument was that, since there was not an exchange established by the “State” of Virginia, that they were not eligible for the tax subsidy, making them qualified for the exemption from the individual mandate.

The US Supreme Court in Burwell however, upheld the IRS’s regulation, interpreting the statute to mean that an individual’s purchase of health care insurance from “an Exchange established by the State” includes both purchases from one of the 34 federally funded exchange sites and the 16 states that elected to establish local exchanges. For the challengers, this means that because a purchase from a federally funded exchange in Virginia qualified them for a tax subsidy, they are required to purchase insurance under the individual mandate.

What this means for individuals in Wisconsin: If your income qualifies you for the tax subsidy–that is your yearly household income is within 1 to 4 times the federal poverty level—and if the cost to you to buy insurance after the subsidy is less than 8% of your individual yearly income, you are required to buy health insurance or face the tax penalty for not buying insurance (otherwise known as the individual mandate).

What this means for Wisconsin Businesses: There are three categories of businesses that are affected by the ACA: small, mid-sized, and large businesses.

First, small businesses—which are those businesses that employ 49 employees or less—are not subject to the “employer mandate,” and are not subject to any penalty for failing to provide coverage to employees. However, those businesses with 25 or less employees with average annual wages of $50,000 are eligible to receive a tax credit if the business provides insurance to their employees. This ruling only affects small businesses to the extent that the individuals involved in the business must comply with the individual mandate.

For mid-size businesses—businesses that employ 50 to 99 employees—starting January 1, 2016, the ACA’s “employer mandate,” requires the business to do one of two things or face a penalty. 1) ensure that a certain percentage of your employees have minimum health care coverage, or 2) pay a certain percentage of your employees enough so they are ineligible to receive the tax credit. While this delay on the “employer mandate” for mid-sized businesses is old news, the Burwell ruling makes the looming employer mandate more certain for Wisconsin businesses. If the ruling had gone the way of the challengers, no employees in Wisconsin who could buy their insurance through the federal exchange site would be eligible for subsidies. Therefore, no Wisconsin employers would be subject to a penalty under the “employer mandate” for failing to provide minimum coverage or the threshold income to their employees.

As for “large” businesses—those who employ 100 or more employees—the employer mandate has been in effect since 2012, so this ruling shouldn’t change what those types of businesses are doing in regard to health care benefits. However, this ruling similarly removes any doubt that all Wisconsin employers must furnish either minimum health insurance coverage or at least provide incomes to their employees to make them ineligible for a tax credit.

Despite the Supreme Court’s clarification of the particular issue in this case, the Affordable Care Act is still an extremely complex law. If you are unsure of where you fit into this complex scheme, contact Schober Schober & Mitchell, S.C. to ensure you can comply with with the Affordable Care Act in the way that best suits the needs of you and/or your business.

This post was written by our law clerk, Jeremy Klang.

SCOTUS Ruling Could Make WI Tax Law Unconstitutional

Posted in Business Litigation, News and Recent Decisions, Tax

It’s too bad the United States Supreme Court didn’t issue its ruling in Comptroller v. Wynne in time for the 2014 tax season. In early May 2015, the nation’s highest Court ruled in favor of a couple in Maryland who argued that part of Maryland’s state tax regime was unconstitutional because it failed to give them a tax credit for taxes paid on income in another state’s county, municipality, or other local taxing authority. The couple, the Wynne’s, are Maryland residents that held stock in an S-Corporation which had gained income in other U.S. states in the taxable year, and they had paid state level and sub-state level taxes on that out-of-state income in states other than Maryland. Maryland’s tax code requires the Wynne’s to pay income tax on that out-of-state income to the state of Maryland in addition to the tax paid on that income in other states, resulting in a double tax on that income. While Maryland allows individuals a tax credit for taxes paid to the state-level taxing authority in other states, it does not allow individuals a tax credit for payment of taxes to out-of-state municipal, county, or other local taxing authority lower than the state level. In Wynne, the United States Supreme Court held that Maryland’s disallowance of a credit for an individual’s payment of tax to an out-of-state county, municipality, or other sub-state level taxing authority violates the dormant Commerce Clause because the disallowance provides those individuals who only engage in commerce within a particular state with an advantage, while it burdens those residents who engage in interstate commerce with a double tax.

Maryland is one of the few remaining states that have such a tax regime, but among these few remaining states is Wisconsin, which has an identical stance that allows tax credits for individuals who pay taxes to state level tax authorities but disallows credits for payment on out-of-state income to any sub-state level taxing authority. See Tax Publication 125, (January 2015), page 2, ¶ D. While most municipalities, counties, or other taxing authorities, such as school districts, at least in Wisconsin, derive much of their tax revenue from sales taxes and property taxes, many sub-state level taxing authorities outside Wisconsin impose income taxes in addition to the state level income tax. For example, about 80% of Iowa school districts impose a surtax that requires individuals to pay additional tax to a local school district on income earned in Iowa for a taxable year. These school districts are allowed to tax as much as 20% of the Iowa state income tax required to be paid to the state in the taxable year. Many other nearby states such as Michigan, Indiana, Ohio, and several other U.S. states also have some type of sub-state level income tax. For all those Wisconsin residents doing business or working with the jurisdiction of out-of-state taxing authority, under current Wisconsin law, you must pay an income tax both to Wisconsin and to the out-of-state sub-level taxing authority, but cannot receive any credit in Wisconsin for the payment to the out-of-state sub-state level taxing authority.

In light of this Wynne ruling, it remains to be seen whether the Wisconsin Department of Revenue will change their stance to allow tax credits for out-of-state payments. With the Wisconsin law and the Maryland law being virtually identical, there isn’t much wiggle room for Wisconsin to continue to disallow these credits. Though the Wisconsin law has not be expressly ruled unconstitutional by the Supreme Court like the Maryland law was in this case, it’d be surprising if the Wisconsin Department of Revenue didn’t to join the vast majority of states that allow a credit across the board for out-of-state income tax payments to sub-state level taxing authorities. However, if the Department of Revenue continues to disallow these credits for the 2015 tax year, it would be doing so in spite of controlling precedent from the nation’s highest Court.

Schober Schober & Mitchell will stay tuned to any changes on the Wisconsin Department of Revenue’s stance on this issue.

This article is the combined effort of Thomas Schober and our law clerk, Jeremy Klang.

Wisconsin Senate Proposes Change to Non-Compete Law

Posted in Business Litigation, Noncompete Agreements, Operating a Business

The Wisconsin Senate recently passed a bill that would yet again fundamentally change the current state of Labor & Employment law in Wisconsin. The bill still requires Assembly approval and the Governor’s signature.

Senate Bill 69 repeals current Wisconsin Statute section 103.465, which governs the enforceability of non-compete agreements in employment contracts. The bill would replace the current statute with a less restrictive and more comprehensive mandatory statutory scheme that Wisconsin courts would be required to follow when determining whether a non-compete is enforceable contractual provision. Currently, under § 103.465, non-compete agreements are more likely than not to be ruled unenforceable because the statute only allows enforcement “if the restrictions imposed are reasonably necessary for the protection of the employer or principal.” This statutory reasonableness standard has allowed for significant judicial law making, making enforcement of non-compete agreements less likely. If the bill becomes law, it would make it much more difficult for courts to strike down non-compete clauses in employment contracts, and make enforceability much more likely.

Notable provisions in the bill include:

  • allowing an employer’s offer continued employment to an at-will employee that is conditioned upon the employee’s acceptance of a contractual non-compete provision to constitute valid consideration for an enforceable contract (which statutorily enacts the recent Wisconsin Supreme Court holding in Runzheimer International, Ltd. v. Friedlen, 2015 WI 45.);
  • requiring “blue-penciling,” a practice recently rejected by the Wisconsin Supreme Court in Star Direct, Inc. v. Dal Pra, 2009 WI 76, in which a court is limited to “crossing-out” only the unreasonable portion of the non-compete agreement, whereas the current law under Star Direct allows courts to eliminate all non-compete provisions (even reasonable ones) where only one individual non-compete is found to be unreasonable;
  • creating a rebuttable evidentiary presumption that a provision that only restrains competition for 6 months or less is presumed to be reasonable; while providing that a provision restraining competition for more than 2 years is presumably unreasonable, but still allowing the employer to prove that the provision is reasonable through clear and convincing evidence;
  • expanding the scope of legitimate business interests protected by the statute to include an employer’s prospective clients, rather than just existing ones;
  • requiring a court to jump through some hoops in order to strike down the provision on public policy grounds by requiring that the court explicitly set out the public policy ground it rests its decision on as well as requiring the court to state why the public policy for non-enforcement substantially outweighs the recognized legitimate business interest of the employer;
  • prohibiting a court from using a terminated employee’s individual economic hardship (from being prohibited from competing against their former employer) as a basis for non-enforcement, unless that person can show there are exceptional circumstances for non-enforcement;
  • requiring that if a terminated employee is found to have violated an enforceable non-compete agreement, that any contractually determined attorney fee shifting must be enforced, or in the absence of that, allowing the court to give the cost and attorney fee to the winning party;
  • disallowing the narrow construction of contract interpretation against the employer, and requiring interpretation of the contract in the favor of providing reasonable protection of the legitimate business interest of the employer; and
  • providing that for employers who have secured an injunction against their former employee, they would not be required to post a bond in order to gain injunctive relief, however, the court could require the employer to provide the former employee security for any damages they might incur due to the injunction.

A link to the bill can be found here.

This is a significant and comprehensive change in the current state of employment law in Wisconsin. The bill ties the hands of the judiciary in striking down non-competes, and gives employers much more power over their employees after termination.

It remains to be seen whether the Governor will sign this bill, but those businesses currently with non-compete agreements should know that these changes will only affect those contracts signed after the bill becomes law while current agreements would still be subject to the judicial discretion allowed by the current § 103.465. Schober Schober & Mitchell S.C. will be keeping a careful eye out for if and when this bill becomes law. Please contact us with any questions regarding the potential change in non-compete law; our business law attorneys will be happy to help.

This post is the combined efforts of Jeremy Klang and Thomas Schober.

 

Feds Resort to 1789 Law to Stop Apple

Posted in Operating a Business, Other Legal Issues, Technology Related Topics

I read an article noted on the ABA Journal Weekly Newsletter entitled, “Feds say 1789 law requires Apple to help government get encrypted smartphone data.” I’ve always been a proponent of individual liberty (and privacy), and I wanted to see what the government was arguing to support its case that they are entitled to snoop on everything we say or do on our smartphones.

The above article cites two further articles, one from Ars Technica’s Law & Disorder, and the other from Wall Street journal’s Digits.

In essence, the government is saying that a court can order anyone to cooperate with the government to get at data the government needs to enforce laws. The 1789 law, as amended, now reads:

28 U.S. Code § 1651 – Writs

(a) The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.

(b) An alternative writ or rule nisi may be issued by a justice or judge of a court which has jurisdiction.

The article points out that the real purpose may be to stop technology companies from making smartphones or other devices that the government cannot get into.

The comments following the blog are outstanding. As is usually the case, many say that if the government wins this case, the “bad guys” will be the only ones left with good encryption, and the rest of us well face constant government surveillance, harassment, arrest and prosecution for things that shouldn’t be anyone else’s business. While I agree, I’ll let you decide.