Wisconsin Business Law Blog : Waukesha, New Berlin, Oconomowoc Corporate & Real Estate Lawyer & Attorney

             In these tough times, lots of businesses have been closing. In fact, for the fist time in our many years of practice, we’re hearing clients tell us that there is not enough business for both them and their direct competition – that if things continue as they are, they will both go out of business. In fact, they’ve become somewhat friends talking about it. Then the idea comes to one of them: could I pay my competition something to get them to shut down? The answer generally lies in the federal antitrust

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What duties do officers and directors of a closely held business owe the company’s creditors when the company is failing?  Unfortunately, this has become a common question during these troubling economic times.  The answer in Wisconsin appears to be bit different than other states at this point if the failing business is still a “going concern.” In Polsky v. Virnich, thecourt held that officers and directors do not owe a fiduciary duty to creditors unless the company is BOTH: (a) insolvent; and (b) not a “going concern.” The court is quite critical of the “going concern” element reasoning that officers and directors in a closely held business can easily keep a failing business “going” and then drain the insolvent company of all cash via bonues, etc… while the company is insolvent thereby enriching themselves who also happen to be the owners. This appears to be at odds with many other jurisdictions where the rule is that a duty is owed creditors when the company is merely insolvent.

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In Frank D. Gillitzer Electric Co.v. Andersen, a Wisconsin Appellate Court found that a provision in an employment contract that required an employee to repay certain training costs if the employee did not stay with the employer for four years after the training was completed did not violate Wis. Stats. § 103.465.  This was the case even though there appeared to be no disagreement that the “separate” explicit noncompete portion of the employment contract was overbroad and did violate §103.465.  This decision follows a the recent Wisconsin Supreme Court decision in Star Direct v. Dal Pra where the court appears to look more favorably about reading divisibility into employment contracts (as opposed to striking all restrictive covenants in an agreement containing an overbroad covenant). This holding brings up some interesting questions to consider when drafting or litigating noncompetes. What would the result be if the employer would set forth in the employment agreement that 10% of an employee's earnings during first 5 years of employment were really excess payments (or training costs) and if she leaves during that 5 year period, she owes the company 10% of her earnings during her employment?

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As most of my listeners know, I love to keep up with what's going on in technology, and even more so, if it's legal technology. While I couldn't be at LegalTech New York this week, I am watching the posts, tweets and articles written by the myriad of people who are attending. On such blog post discusses cloud computing and why we aren't quite "there" yet:

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