Richard A. Kranitz, Esq., comments on Manitowoc Company v. Lanning, a recent decision from the Supreme Court of Wisconsin

Veteran business law attorney, Richard A. Kranitz, Esq., comments on Manitowoc Company v. Lanning, a recent decision from the Supreme Court of Wisconsin, addressing the enforceability of non-solicitation of employees provision in an employment agreement

In his newest published article, business lawyer and coach Richard Kranitz reviews the Wisconsin Supreme Court case of Manitowoc Company v. Lanning, which has important implications for employment agreements. The full article is available on the blog of Mr. Kranitz at https://richardkranitzblog.blogspot.com/

The defendant John Lanning worked for the Manitowoc Company (hereinafter “Manitowoc”) for 25 years as a chief engineer of its construction crane division, starting in 1985.  In 2008, Lanning signed an employment agreement with Manitowoc that contained a non-solicitation of employees provision.  The non-solicitation provision prohibits Lanning from “soliciting, inducing, or encouraging any Manitowoc Company employee to terminate his or her employment with Manitowoc Company or to accept employment with a competitor, supplier, or customer of Manitowoc Company” for a period of two years after Lanning’s termination.

Lanning quit his job at Manitowoc on January 6, 2010 and became the director of engineering at SANY America, a competitor of Manitowoc.  Manitowoc claimed that Lanning subsequently violated the non-solicitation provision on numerous occasions.  “For example, Manitowoc Company asserts that Lanning communicated with at least nine Manitowoc Company employees about potential employment opportunities at SANY, took one Manitowoc Company employee out to lunch in connection with SANY recruitment efforts, took another Manitowoc Company employee on a tour of a SANY crane manufacturing plant in China, and participated in a third Manitowoc Company employee's job interview with SANY.”

First, the Wisconsin Supreme Court addressed whether Wisconsin Statute § 103.465, pertaining to restrictive covenants in employment contracts, applies to the non-solicitation provision in Lanning’s employment contract.  The statute provides that “’any covenant’ described in § 103.465 imposing an ‘unreasonable restraint is illegal’ even as to any part of the covenant that would be a reasonable restraint”.  Manitowoc argued that section 103.465 does not apply to the non-solicitation provision because it is not a non-compete provision, rather non-solicitation.  The Court, however, noted that “[t]ime and again, the case law has focused on the effect of the provision of an employment agreement rather than its label to determine whether it constitutes a restraint of trade governed by Wis. Stat. § 103.465”.  Further, “[w]hether a particular agreement constitutes a restraint of trade is based not upon how the agreement is labeled but upon the effect of the agreement on employees and competition”.  Therefore, because ”[t]he effect of Lanning's non-solicitation provision is to prevent Lanning and a Manitowoc Company competitor from competing fully with Manitowoc Company in the labor pool by soliciting Manitowoc Company employees”, the provision did fall under the scope of section 103.465.

The Court then addressed whether the non-solicitation provision met the requirements of the statute.  The Court noted that the provision prohibits Lanning from soliciting any employee of Manitowoc, which numbers over 13,000 worldwide.  “The non-solicitation provision contains no limitations based upon the nature of the employee's position within Manitowoc Company. No limitations are based upon Lanning's personal familiarity with or influence over a particular employee. There is no limit based upon the geographical location in which the employee works.”  The Court noted that while an employer may have a protectable interest in “retaining top-level employees, employees who have special skills or special knowledge important to the employer's business, or employees who have skills that are difficult to replace”, it does not have a protectable interest in retaining all employees.  Therefore, the Court upheld the lower appellate decision striking down the non-solicitation provision as unenforceable.

Mr. Kranitz notes that the case serves as a cautionary tale for practitioners drafting restrictive provisions in employment contracts as well as employers who wish to utilize such provisions.  The case is Manitowoc Company v. Lanning, Case No. 2015AP1530.

About Richard A. Kranitz

Richard Kranitz is an experienced attorney and business consultant in the areas of corporate, securities and tax planning for corporations, partnerships, joint ventures, limited liability companies, multi-unit enterprises, and a variety of different non-profit entities. In addition, he has counseled their owners and executives in compensation planning, estate plans, and asset protection.

References

Website: https://advicoach.com/rkranitz/

LinkedIn Profile: https://www.linkedin.com/in/richard-kranitz-63684b

Facebook: https://www.facebook.com/richard.kranitz.50

Attorney Profile: https://solomonlawguild.com/richard-a-kranitz-esq

Blog: https://richardkranitzblog.blogspot.com/

News at: https://hype.news/attorney-richard-a-kranitz/n-16281b97-6a6a-4de2-be3e-796f2da08677/stories

*** Richard Kranitz (Wisconsin) is an experienced attorney and business consultant in the areas of corporate, securities and tax planning for corporations, partnerships, joint ventures, limited liability companies, multi-unit enterprises, and a variety of different non-profit entities. In addition, he has counseled their owners and executives in compensation planning, estate plans, and asset protection. Attorney profile at: https://solomonlawguild.com/richard-a-kranitz-esq

Richard A. Kranitz, Esq., veteran business attorney, notes the emergence of sexual misconduct due diligence as a new issue in corporate mergers and acquisitions.

Richard A. Kranitz, Esq., veteran business attorney, notes the emergence of sexual misconduct due diligence as a new issue in corporate mergers and acquisitions.

            

“With the increase of high-profile sexual misconduct cases against high ranking corporate officers, buyers are increasingly turning more attention to social due diligence and including the so called ‘Weinstein Clause’ in their offer terms”, says veteran attorney Richard A. Kranitz.  The Weinstein Clause, a moniker originating from the widely publicized allegations against movie producer Harvey Weinstein, could refer to many different forms of a contractual clause ranging from escrowed funds against potential damaging claims arising after the sale to guarantees that there are no known claims of sexual misconduct against current high-level corporate executives.  The increasing use of the Weinstein clause highlights the concerns that many buyers have of later revealed damaging information.

Such concerns are also increasing buyers’ focus on social due diligence.  No longer looking just at financial information, prospective buyers are digging deeper into a company’s overall health, such as online reputation, social media presence, as well as potential outstanding misconduct claims or liabilities.  Increased emphasis on responding to sexual misconducts against high level corporate executives is a growing trend in the business world.  According to Temin & Co., a consulting group, corporations have drastically shortened the average time between report of alleged misconduct and dismissal from six weeks in mid-2017 to little over two weeks in mid-2018.

Some, however, are skeptical as to the real-life impact of increased efforts to mitigate risk from corporate sexual misconducts.  In an interview with the Washington Post, noted attorney Debra Katz welcomed the focus such efforts put on sexual misconduct, but was unsure whether it would have real life impact.  Ms. Katz noted that high number of sexual misconduct cases go unreported.  

Furthermore, if the misconduct was perpetrated by an executive at the highest level, efforts such as the Weinstein Clause may be unlikely to cause disclosure of information regarding the misconduct.

Even if there are hurdles such as calculations of damages in enforcing such a clause, the attention on the issue of unknown sexual misconduct by the seller in corporate M&A shows the increased significance of such issue.  It will take a multi-dimensional approach, including contractual clauses and deeper due diligence to address the issue of unknown sexual misconduct in corporate acquisitions. 

*** Richard Kranitz (Wisconsin) is an experienced attorney and business consultant in the areas of corporate, securities and tax planning for corporations, partnerships, joint ventures, limited liability companies, multi-unit enterprises, and a variety of different non-profit entities. In addition, he has counseled their owners and executives in compensation planning, estate plans, and asset protection. Attorney profile at: https://solomonlawguild.com/richard-a-kranitz-esq

References

Website: https://advicoach.com/rkranitz/

LinkedIn Profile: https://www.linkedin.com/in/richard-kranitz-63684b

Facebook: https://www.facebook.com/richard.kranitz.50

Attorney Profile: https://solomonlawguild.com/richard-a-kranitz-esq

Blog: https://richardkranitzblog.blogspot.com/

News at: https://hype.news/attorney-richard-a-kranitz/n-16281b97-6a6a-4de2-be3e-796f2da08677/stories

Richard A. Kranitz, Esq., experienced Business Attorney, stresses the importance of conducting a thorough Due Diligence prior to Business Acquisition.

Richard A. Kranitz, experienced Business Attorney, stresses the importance of conducting a thorough Due Diligence prior to Business Acquisition

            “Conducting a thorough due diligence before business acquisition is critical to a successful and smooth acquisition process”, says veteran attorney Richard A. Kranitz.  Some of the obvious areas of diligence would include existing contracts, payroll history, retirement account liabilities, and overview of assets and liabilities.  While most would-be business owners would understand the need for examining these basic, but critical, information, a more thorough review and analysis may be appropriate in certain circumstances.

            One such example would be acquisition of a business in a different state or even business with an overseas presence.  With exposure to different regulatory requirements in a new jurisdiction, the acquiring business would have to accurately assess its new obligations and exposures.  For example, a company dealing with sensitive consumer data would be subject to varying types of regulatory requirements in whatever state they do business in.  If such a business were to acquire another business in a different state, they would have to conduct a review to ensure that their existing compliance scheme meets the requirements of the new jurisdiction.  Even more complicated, if the acquiring business is new to handling sensitive consumer data, they may have to review the compliance scheme from scratch or build one from the ground up.  

            Overseas acquisition could be even more complex.  For example, the European Union has enacted General Data Protection Regulation (“GDPR”).  GDPR is widely considered one of the most sweeping and expansive data protection laws anywhere in the world.  Any acquisition of business potentially subject to GDPR would require an extensive review of data handling protocol to ensure compliance with the breadth and scope of GDPR.  

            While many acquisition due diligences focus on financial health and potential liability exposure of the acquired business, experienced attorneys will examine all relevant issues, including, but not limited to, regulatory concerns and multi-jurisdictional dimensions.  Thorough due diligence is critical to ensure that all potential issues and pitfalls are examined prior to the deal being completed and that post-acquisition operation is smooth and free of unanticipated surprises.

 


*** Richard Kranitz (Wisconsin) is an experienced attorney and business consultant in the areas of corporate, securities and tax planning for corporations, partnerships, joint ventures, limited liability companies, multi-unit enterprises, and a variety of different non-profit entities. In addition, he has counseled their owners and executives in compensation planning, estate plans, and asset protection. Attorney profile at: https://solomonlawguild.com/richard-a-kranitz-esq

Richard A. Kranitz, The Value Builder System, 3 Ways To Make Your Company More Valuable Than Your Industry Peers

3 Ways To Make Your Company More Valuable Than Your Industry Peers

Have you ever wondered what determines the value of your business?

Perhaps you’ve heard an industry rule of thumb and assumed that your company will be worth about the same as a similar size company in your industry. However, when we take a look at the data provided by The Value Builder System™, we’ve found there are eight factors that drive the value of your business, and they are all potentially more important than the industry you’re in.

Not convinced? Let’s look at Jill Nelson, who recently sold a majority interest in her $11 million telephone answering service, Ruby Receptionists, for $38.8 million.

That’s a lot of money for answering the phone on behalf of independent lawyers, contractors and plumbers across America.

To give you a sense of how high that valuation is, let’s look at some comparison data. At Value Builder, we’ve worked with more than 30,000 businesses in the last five years. Our clients start by completing their Value Builder questionnaire, which covers 42 questions that allow us to place an estimate of value on a company. The average value for companies starting with us is 3.6 times pre-tax profit and those who graduate our program with a Value Builder Score of 80+ (out of a possible 100) are getting an average of 6.3 times pre-tax profit.

When we isolate the administrative support industry that Ruby Receptionists operates in, the average multiple offered for these companies over the last five years is just 1.8 times pre-tax profit. 

Nelson, by contrast, sold the majority interest in Ruby Receptionists for more than 3 times revenue.

There were three factors that made Nelson’s business much more valuable than her industry peers, and they are the same things you can focus on to drive up the value of your company:

1.      Cultivate Your Point Of Differentiation

Acquirers do not buy what they could easily build themselves. If your main competitive advantage is price, an acquirer will rightly conclude they can simply set up shop as a competitor and win most of your price sensitive customers away by offering a temporary discount.

In the case of Ruby Receptionists, Nelson invested heavily in a technology that ensured that no matter when a client received a phone call, her technology would route that call to an available receptionist. Nelson’s competitors were mostly low-tech mom and pop businesses who often missed calls when there was a sudden surge of callers. Nelson’s technology could handle client surges because of the unique routing technology she had built that transferred calls efficiently across her network of receptionists.

Nelson’s acquirer, a private equity company called Updata Partners, saw the potential of applying Nelson’s call-routing technology to other businesses they owned and were considering investing in.

2.      Recurring Revenue

Acquirers want to know how your business will perform after they buy it. Nothing gives them more confidence that your business will continue to thrive post sale than recurring revenue from subscriptions or service contracts.

In Nelson’s case, Ruby Receptionists billed its customers through recurring contracts—perfect for making a buyer confident that her company has staying power.

3.      Customer Diversification

In addition to having customers pay on recurring contracts, the most valuable businesses have lots of little customers rather than one or two biggies. Most acquirers will balk if any one of your customers represents more than 15% of your revenue.

At the time of the acquisition, Ruby Receptionists had 6,000 customers paying an average of just a few hundred dollars per month. Nelson could lose a client or two each month without skipping a beat, which is ideal for reassuring a hesitant buyer that your company’s revenue stream is bulletproof.

Nelson built a valuable company in a relatively unexciting, low-tech industry, proving that how you run your business is more important than the industry you’re in.

 


*** Richard Kranitz (Wisconsin) is an experienced attorney and business consultant in the areas of corporate, securities and tax planning for corporations, partnerships, joint ventures, limited liability companies, multi-unit enterprises, and a variety of different non-profit entities. In addition, he has counseled their owners and executives in compensation planning, estate plans, and asset protection. Attorney profile at: https://solomonlawguild.com/richard-a-kranitz-esq