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    November
    06
    2009

    Star Direct Takes Restrictive Covenant Law in a New Direction

    Bradden C. Backer

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    In determining the enforceability of restrictive covenants in Star Direct, the Wisconsin Supreme Court’s holdings and approach appear to be inconsistent with the long-standing test and rules for making such determinations. The Star Direct court’s approach relaxes the hostility with which such anticompetitive provisions have traditionally been viewed by Wisconsin courts.

    Wisconsin LawyerWisconsin Lawyer
    Vol. 82, No. 11, November 2009

    Fence On July 14, 2009, the Wisconsin Supreme Court issued its decision in Star Direct v. Dal Pra,1 which marks the beginning of a new chapter in Wisconsin’s treatment of restrictive covenants – agreements that limit the competitive activities of current or former employees and agents. The five-member majority, in an opinion authored by Justice Gableman, exhibited an unprecedented degree of solicitude for such agreements and substantially enhanced the ability of employers to enforce them. In addition to examining and commenting on the substantive law developments introduced by Star Direct, this article considers and critiques two analytical tools used by the majority in articulating the court’s new approach to assessing the enforceability of restrictive covenants.

    The Analytical Foundation for Considering the Enforceability of Restrictive Covenants

    More than a half-century ago, the Wisconsin Legislature adopted Wis. Stat. section 103.465 to overrule the Wisconsin Supreme Court’s decision in Fullerton Lumber Co. v. Torborg,2 which held that courts have the power to reform or “blue-pencil” restrictive covenants by ignoring unreasonable, and therefore unenforceable, provisions and enforcing them to the extent the court deems reasonable. That statute provides as follows:

    “A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this subsection, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.”

    The court subsequently explained that the statute served the public policy of enhancing employee mobility by limiting the effect of unreasonable covenants.3 This statutory purpose was enhanced by including language that minimized the in terrorem effect of such agreements.4 By codifying a requirement that such restrictions’ purpose and scope be reasonable and declaring that “an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint,” the legislature created a disincentive to overreaching in the drafting of these agreements and consequently reduced their in terrorem effect.

    Greater certainty in assessing the likely enforceability of restrictive covenants permits all affected parties – the former employer, its former employee, and the prospective or subsequent employer – to make rational decisions concerning matters potentially affected by those agreements. Greater certainty about the likely enforceability of restrictive covenants also serves the public policy underlying section 103.465 by enhancing employee mobility. The constraint on employee mobility is one fundamental reason for the disfavor with which Wisconsin law views such contracts.5

    Bradden C. Backer

    Bradden C. Backer, U.W. 1981, is a partner in Albrecht Backer Labor and Employment Law S.C., with offices in Milwaukee and Madison, a firm that focuses on representing businesses in employment and labor matters, including in noncompete and other restrictive-covenant-agreement matters. His last article on restrictive covenants appeared in the February 2002 Wisconsin Lawyer. The author thanks Jeremy P. Levinson, Shannon A. Allen, and Matthew W. O’Neill of Friebert, Finerty & St. John S.C. for their editorial assistance and U.W. law student Suzanne Glitsch for research assistance.

    The five-factor test for determining the reasonableness of restrictive covenants – agreed on by both the majority and the dissent in Star Direct6 – is historically linked to the statutory mandate of section 103.465. Only two years after enactment of the statute, the court stated that a restrictive covenant will not be enforceable unless it 1) is necessary to protect the employer;7 2) provides a reasonable time limit; 3) provides a reasonable territorial limit; 4) is not “harsh or oppressive to the employee”; and 5) is not contrary to public policy.8 This standard has been repeated like a mantra ever since.

    The following court-created guidelines for construing the enforceability of restrictive covenants also are grounded in the statute,9 and they, individually and collectively, constitute the equivalent of a “raised judicial eyebrow” respecting the enforceability of such contracts: Employers have the burden of proof in establishing the enforceability of restrictive covenants.10 These restrictions are “viewed with suspicion”11 – indeed, they are “prima facie suspect.”12 Restrictive covenants also must “withstand close scrutiny to pass legal muster as being reasonable; they will not be construed to extend beyond their proper import or further than the language of the contract absolutely requires; they are to be construed in favor of the employee.”13 As will be discussed below, the holding and analysis of Star Direct appear to be at odds with the long-standing five-factor test and these interpretive directives.

    Background of the Star Direct Dispute

    Star Direct engaged in the business of distributing various products to customers consisting of convenience stores, service stations, truck stops, and travel centers.14 Dal Pra was employed as one of the company’s route salespersons,15 a position that the court deemed central to the company’s business model.16 His employment was conditioned on his accepting an agreement that contained three distinct restrictive covenants that limited his competition for 24 months following the termination of his employment:17 1) a customer clause, which restricted his solicitation of, and competition for, current customers of the company, and past customers that had terminated their relationship with the company during the year before Dal Pra’s termination and that he had serviced, dealt with, or obtained knowledge about during his employment;18 2) a business clause, essentially a noncompete provision;19 and 3) a confidentiality clause, which restricted the use or disclosure of “all information or knowledge, disclosed or otherwise obtained by him during his employment….”20

    The customer clause, the provision of greatest analytical interest, read as follows:

    “[F]or twenty-four (24) months, [sic] after termination of Employee’s employment with Employer, Employee shall not interfere with, or endeavor to entice away from Employer any person, firm, corporation, partnership or entity of any kind whatsoever which is a customer of Employer CB Distributors or which was a customer of Employer or CB Distributors within a period of time of one year prior to the termination of Employee’s employment with Employer, for which Employee performed services or otherwise dealt with on behalf of Employer or relative to which Employee obtained special knowledge as a result of his position with Employer; and Employee shall not approach any such customer or past customer for any such purpose or knowingly cooperate with the taking of any such action by any other person, firm, corporation, or entity of any kind.”21

    The court characterized this restriction as a prohibition against “interfering with or attempting to entice away: (1) current customers of Star Direct that Dal Pra serviced, dealt with, or obtained special knowledge about during his employment, and (2) those who were customers during the year prior to Dal Pra’s termination (‘past customers’) whom Dal Pra serviced, dealt with, or obtained special knowledge about during his employment.”22

    After roughly four years, Dal Pra quit his job and established his own distribution company.23 This business allegedly competed with Star Direct in a manner that violated both the business clause and the customer clause. Star Direct sued Dal Pra, seeking both injunctive relief and damages.24 Presented with cross-motions for summary judgment, the circuit court denied the employer’s motion and granted Dal Pra’s, concluding that each of the three restrictive covenants was both unenforceable and indivisible from the others.25

    In an unpublished opinion, the court of appeals concluded that the business clause was unenforceable and was indivisible from the customer clause and that the indivisibility of the clauses rendered the customer clause unenforceable. The court of appeals did not analyze the enforceability of the customer clause, apart from its fatal and indivisible link to the business clause, or either the enforceability of the confidentiality clause or its indivisibility respecting the other restrictive covenants.26

    Supreme Court Holding

    The Wisconsin Supreme Court reversed the court of appeals and remanded the case to the circuit court for further proceedings. The five-
    justice majority27 rejected all challenges to the enforceability of the customer clause and the confidentiality clause.28 The court agreed that the business clause was unreasonably overbroad and unenforceable because it barred engaging in noncompetitive, as well as competitive, enterprises.29 Finding this clause divisible from the other two, the court concluded that the unreasonableness of the business clause had no effect on the enforceability of the customer clause and the confidentiality clause.30

    In reaching this result, the court made five specific substantive clarifications – or in some cases, arguably changes – to Wisconsin’s law respecting restrictive covenant agreements. The court: 1) recognized for the first time that an employer has an interest in restricting competition from a former employee for its past customers – at least those customers that have recently ended their ties with the employer;31 2) validated restrictions against competition for the business of current customers with whom an employee has had no contact, so long as that employee has obtained special knowledge about the customer or, perhaps, mere knowledge about the former employer;32 3) enforced a restrictive covenant not required of all similarly situated employees;33 4) concluded that the unenforceability of a restrictive covenant will have no effect on the enforceability of other restrictive covenants, provided that they are divisible;34 and 5) articulated a refined, or arguably new, test regarding the divisibility of distinct restrictive covenants.35

    Perhaps as significantly, the court articulated a far more supportive approach to considering the enforceability of these agreements:

    “One of the running themes in this case is how broadly or narrowly to read restrictive covenants. As discussed earlier, it is true that we read restrictive covenants in favor of the employee. But this does not mean we make an effort to read a clause unreasonably in order to find the clause unreasonable and unenforceable against the employee. Though they are disfavored at law, our task is still to rightly and fairly interpret non-compete agreements as contracts.”36

    As will be discussed in greater detail below, the court’s holdings and approach appear to be inconsistent with the long-standing test and rules for determining the enforceability of such agreements. Indeed, the court’s overall approach appears to substantially set aside the hostility with which such anticompetitive provisions have been viewed by Wisconsin courts.

    The Enforceability of Restrictions on Competition for Past Customers

    The circuit court rejected the enforceability of the Star Direct customer clause because it prohibited competition respecting businesses that had ceased to do business with Dal Pra’s employer.37 The restriction explicitly included past customers of Star Direct, albeit those who had done business with it in the year preceding the termination of Dal Pra’s employment.38

    Acknowledging that “[n]o Wisconsin case has explicitly addressed or affirmed an employer’s interest in customers who have recently chosen to cease doing business with the employer,”39 the court concluded that “Star Direct does have an interest in prohibiting the solicitation of its recent past customers.”40 The court stressed the existence of an employer’s “general interest in winning back the business of its recent past customers.”41 The court also recognized an employer’s interest in protecting itself against the competitive advantage possessed by a former employee in knowing the employer’s business, for example, “prices, pricing strategies, proprietary marketing techniques, and profit margins,”42 its customers’ “specific needs and product desires,”43 and the employee’s “relationship history with them.”44

    The court declined to opine on “how much time must pass between a customer placing an order and a route salesperson’s termination before the employer no longer has a legitimate protectable interest in that customer. Our holding today under the facts of this case is that the interim of one year is not too long.”45 And having placed great emphasis on an employer’s particular interest in restricting competition from route salespersons,46 the court left uncertainty about the applicability of its conclusion that an employer had a protectable interest in proscribing competition for past clients in a business model that, unlike Star Direct’s, does not rely on route salespersons.

    The court relied on two decisions in which courts, without comment, did not strike down nonsolicitation provisions that, the Star Direct court observed, may have extended to include past customers. Neither of these decisions, however, actually addressed that issue.47 A critique of using “silent” decisions as precedent in this manner is discussed below.

    The court’s explanation for its conclusion that employers have a protectable interest in restricting solicitation of their former customers is troubling. First, the employer interests cited by the court to justify this restriction appear to be far more tenuous than those recognized as justifying a nonsolicitation covenant in the case of current customers. The court acknowledged that, under the terms of the customer clause, the salesperson might have had no recent, or indeed any, “relationship history” with the past customer.48 Rather, the court concluded that restriction on the solicitation of past customers was justified by presumed employee “special knowledge” about a former employer’s operations or the former customers. This justification, however, begs the question about whether this “special knowledge” exists and actually confers a competitive advantage that justifies the restriction.

    In addition, the court’s reliance on a presumed, generalized employer interest in restricting competition to enhance the opportunity to win back recent past customers appears to be inconsistent with the critical attitude toward restrictive covenants that underlies section 103.465 and the long-standing precedent that places a heavy burden on employers seeking to justify such restrictions.49 Acknowledging that “an employer’s prospects of rekindling customer relationships fade considerably” with time, the court nonetheless concluded, without justification or precedential support, that “an employer is entitled to an opportunity to recoup the considerable investment of resources it made in developing and fostering customer relationships and business opportunities that were active as recent as one year prior to the employee’s termination.”50 The actual prospects for success in winning back former customers could range from zero to some greater, but unknown, possibility. In explaining the reasonableness of this restriction, the court even assumed that “past customers may have chosen to take their business elsewhere temporarily….”51Each of these assumptions appear inconsistent with the “hostility” with which courts have been directed to view such restraints on trade.

    This unknown and speculative employer interest in winning back past customers highlights another issue concerning the court’s analysis: Star Direct was relieved of any obligation to prove that its interest was real. Indeed, the court’s presumption that employers have interests that justify restrictions on competition for recent past customers appears to have truncated the established enforceability analysis by foreclosing a factual inquiry into the actual strength of the employer’s interest in the restriction against competition. The court arguably created an irrebuttable presumption of an employer interest in restricting competition for its recent past customers. If so, the holding appears to be a departure from Wisconsin Supreme Court precedent requiring a factual inquiry into the strength of employer interests implicated by assertions of special employee knowledge.52

    Finally, in reaching this conclusion, the court appeared to ignore the five-factor test articulated in Slutsky as well as its long-standing ancillary rules.

    The Permissibility of Restricting Customers with Whom the Employee had no Recent Contact

    Relying on Equity Enterprises, Inc. v. Milosch,53 Dal Pra maintained that the nonsolicitation restriction was unreasonable because it “prohibits interference with customers with whom [he] may not have been in contact for years.”54 The court rejected this argument, because “[e]ven if Mr. Dal Pra was not the recent servicer of a customer he would still have some relationship with that customer, important knowledge about that customer or maybe most significantly, special knowledge about Star Direct’s business and methods.”55 Milosch, the majority observed, concerned a customer nonsolicitation provision that lacked any requirement of recent contact between former employee and customer.56

    Like the court’s analysis of the restriction against solicitation of past customers, the most troubling aspect of this justification is the assumed and hypothetical nature of the asserted employer interest. For example, neither the text of the Star Direct customer clause nor the majority’s holding clearly require that the special knowledge – which is the linchpin of the court’s response to the challenge to this aspect of the customer clause – had been recently obtained by the employee or provided him with a real competitive advantage. Rather, the contact and special knowledge of the former employee is assumed to confer a competitive advantage in all cases. Indeed, the court’s holding appears to have relieved employers of any burden of proof on this critical factual matter.

    The court’s analysis of this challenge did not address the situation in which the employee had no special knowledge; such knowledge was presumed to exist in the case of all past and current customers, irrespective of when the employee last obtained that knowledge or had contact with that customer.57 Likewise, the court did not address the enforceability of a customer nonsolicitation restriction when there was neither special knowledge nor any recent contact between the former employee and the customer.

    The Significance of Inconsistency in Obtaining Restrictive Covenants

    The court rejected this final challenge to the enforceability of the customer clause by noting that, since Star Direct’s acquisition by its current owners in 2002, it had consistently required execution of restrictive covenant agreements by all new employees. Under these circumstances, the court observed that “we are untroubled by the fact that not every salesperson signed a non-
    compete agreement.”58  

    The Alleged Overbreadth of the Confidentiality Clause

    Although Dal Pra did not challenge the confidentiality clause, the circuit court deemed it to be overly broad and unenforceable “because it barred Dal Pra from using or disclosing any information.”59 Justice Gableman disagreed, reasoning that “[a]ll of the enumerated examples of protected information in the confidentiality clause are of a proprietary nature,” and that “[t]he only reasonable construction of the clause considered in its totality is that it prohibits Dal Pra’s use of confidential information of the type identified in the examples – information of a confidential and sensitive nature that, if made public or used by Dal Pra, would be deleterious to Star Direct’s business.”60

    Despite this pronouncement, the court’s holding is difficult to reconcile with general rules of contract construction, as well as those formulated for the interpretation of restrictive covenants. The clause imposed a confidentiality obligation on “any information or knowledge, known, disclosed or otherwise obtained by [the employee] during his employment….”61 The court’s reliance on the clause’s examples to limit the sweeping definition of confidential information seems counterintuitive and inconsistent with the language used in the definition.62 Moreover, the examples of “any information” are preceded by the language “including but not limited to….” The court’s analysis appeared to give these words no effect.63 This entire strained approach accordingly seems at odds with the majority’s declaration that, notwithstanding the disfavor with which restrictive covenants are viewed, “[the court’s] task is still to rightly and fairly interpret non-compete agreements as contracts.”64

    The court’s holding also appears to call into question the 50-year mandate that restrictive covenants are to be construed in favor of the employee65and the more recently articulated canon of construction that such provisions should not to be construed “beyond their proper import.”66 Anticipating such objections, the majority commented as follows: “[I]t is true that we read restrictive covenants in favor of the employee. But this does not mean we make an effort to read a clause unreasonably in order to find the clause unreasonable and unenforceable against the employee.”67

    The Issue of (In)Divisibility

    Star Direct effected a major clarification, perhaps even a profound change, in Wisconsin’s approach to issues concerning the divisibility or indivisibility of multiple restrictive covenants. A background concerning this concept is essential to understanding and assessing the court’s ruling.

    The indivisibility concept is the logical corollary of the policy balance reflected in the all-reasonable-or-nothing public policy underlying section 103.465. An invalid restrictive covenant that is indivisible from a valid restrictive covenant must be fatal to the enforceability of both, if the statute’s language and underlying public policy are to be given effect.68 A more far-reaching application of this public policy would extend this principle to divisible restrictive covenants.

    The Wisconsin Supreme Court first enunciated this principle in Streiff v. American Family Mutual Insurance Co., withholding comment on the effect of an unenforceable restrictive covenant on an otherwise reasonable, divisible provision. The contract in Streiff contained two provisions – paragraph 5h, which contained customer nonsolicitation and noncompete provisions, and paragraph 5i, which contained another restrictive covenant and provided for forfeiture of extended earnings if the former employee breached either restrictive covenant. The Streiff court held that an unenforceable restrictive covenant precluded the enforcement of another, otherwise reasonable, indivisible restrictive covenant. Accordingly, it refused to consider giving effect to an arguably reasonable restrictive covenant when the agreement contained another covenant that contained no reasonable activity, duration, and territorial limits. This approach, the Streiff court explained, would act as a deterrent to employers who “fashion ominous covenants which affect the mobility of employees because of their in terrorem effect on employees who respect contractual obligations and their effect on competitors who do not wish to risk legal difficulties.69

    The Streiff court then offered the supreme court’s first discussion about distinguishing between indivisible and divisible restrictive covenants. The court concluded that the provisions were “not distinct, mutually exclusive, independent provisions that come into play in totally different fact situations so that they are divisible.”70 The court also stressed that that “they govern[] several similar activities,” and it deemed the provisions “intertwined,” indivisible and, therefore unenforceable.71

    Star Direct and (In)Divisibility

    The Star Direct court offered four observations about Streiff that laid the groundwork for limiting its holding. First, the court correctly characterized Streiff as leaving open the question of the effect of an unreasonable restrictive covenant on another otherwise reasonable restrictive covenant in the context of divisible provisions. It then commented that Streiff “was not purporting to decide whether Wis. Stat. § 103.465 overruled the common law distinction between divisible and indivisible contracts, or just blue-penciling of indivisible contracts as was done in Torberg.”72Second, it commented that “[n]owhere does Streiff purport to establish a comprehensive test or set of factors to be analyzed for determining whether restrictive covenants are indivisible.”73Third, the Star Direct court pronounced “that we believe the legislative history and text of the statute did not eliminate or modify the common law rules on divisibility,” thus concluding that “[t]he statute’s prescriptions … apply to any ‘covenant,’ not to the entire contract.”74Fourth, it characterized the indivisibility conclusion reached in Streiff as “premised primarily on the fact that the provisions were intertwined via their textual link,” rather than the overlapping subject matter of the restrictive covenant provisions.75 This latter approach to defining divisibility was most clearly articulated in Mutual Service Casualty Insurance Co. v. Brass,76 in which the court of appeals interpreted Streiff’s divisibility test as turning on whether the provisions “govern several similar types of activities and establish several time and geographic restraints.” Deeming this an “expansive rendering” of Streiff, the Star Direct court overruled Brass’s articulation of the divisibility test.77

    The court then announced its own divisibility test:

    “The foundational inquiry for determining whether a covenant is divisible is whether, if the reasonable portion is stricken, the other provision or provisions may be understood and independently enforced. This inquiry will be fact-intensive and depend on the totality of the circumstances. In the context of multiple non-compete provisions in a contract, indivisibility will usually be seen by an intertwining, or inextricable link, between the various provisions via a textual reference such that one provision cannot be read or interpreted without reference to the other. Restrictive covenants are divisible when the contract contains different covenants supporting different interests that can be independently read and enforced.”78

    Although at first glance the court’s test has the advantage of comparative clarity, the test fails to achieve that objective when examined closely. Qualifying the textual focus of the test with the unexplained term “usually” creates uncertainty about when this approach to resolving the question of divisibility applies and magnifies that uncertainty by failing to articulate the alternative approach that should be applied when that formulation is inappropriate. In addition, the reference in the last sentence of the court’s divisibility test formulation to “different interests” served by multiple restrictive covenants arguably resurrects the Brass approach, which the majority explicitly rejected.

    Moreover, strict adherence to the pure “textual focus” test (perhaps) articulated by the Star Direct court is arguably inconsistent with the public policy underlying section 103.465, which is to discourage employer over-reaching in the drafting of restrictive covenant agreements.79 Assuming competent drafting, the pure textual-focus test will dramatically limit the number of agreements whose multiple restrictive covenants are deemed indivisible. Employees will be confronted with contracts that contain overlapping layers of restrictive covenant restrictions, and they should assume, in light of Star Direct, that the unenforceability of any one or more such restrictions may well leave the remaining restraints intact and enforceable.

    Critique of the Court’s Analytical Tools

    Two analytical tools the court used warrant consideration. The first – its citation of precedent that was silent about the propositions for which it was cited – drew the condemnation of Justice Bradley and Chief Justice Abrahamson in the former’s separate opinion. Among the criticisms the justices directed at what they described as this “new interpretive tool of appellate analysis created today by the majority” was that it was “contrary to precedent [and] principles of judicial restraint and makes no sense.”80

    The persuasiveness of this criticism is most easily observed by reviewing the majority’s response, which acknowledged that “[t]he dissent’s arguments against such an interpretive approach are strong.”81 The majority then offered a puzzling justification for its use of this analytical tool: “We explicitly state that these cases do not settle the matter. The cases in fact do show both that courts and litigants have not flagged the implicit asserted interest in past customers, and that this sort of provision is not really all that unique.”82 One can fairly question the value and propriety of the citation of precedent in this manner for the sole purpose of demonstrating what the parties in prior cases chose not to argue.

    The second disturbing aspect of the majority’s analysis is its overall failure to actually apply the half-century-old test for determining such provisions’ enforceability and the long-standing rules for assessing these restraints against competition. Although acknowledging the five-factor test in its introductory remarks, the majority never actually applied it in assessing the enforceability of the challenged restrictive covenants. Similarly, the majority invoked the long-standing principles of construction applied to such contracts, merely to dismiss them as secondary to an implicitly distinct and overriding obligation of construing the contract “rightly and fairly.”

    Conclusion

    Star Direct announces a new era of tolerance for restrictions against competition. Whether one is comforted or disturbed by this policy result,83 there is little doubt that the court’s reasoning is troubling both for its obvious tension with precedent and the public policy underlying section 103.465 and for its apparent departure from “fundamental principles of judicial restraint.”84 Evidencing a fundamental shift in assessing the enforceability of such agreements, Star Direct grants drafters and lower courts a blank check in expanding the scope and effect of these contracts.

    Endnotes

    12009 WI 76, __ Wis. 2d __, 767 N.W.2d 898.

    2270 Wis. 133, 70 N.W.2d 585 (1955). The court concluded that a 10-year restrictive covenant was unreasonable, but in what amounted to reforming the contract, it deemed the covenant enforceable for three years.

    3American Family Mut. Ins. Co v. Streiff, 118 Wis. 2d 602, 614, 348 N.W.2d 505 (1981).

    4Id.; Star Direct, 2009 WI 76, ¶ 120 (Abrahamson, C.J., dissenting). The phrase “in terrorem effect” is used by courts and commentators to refer to the legal threat implicit in such agreements. This effect is inevitably magnified by uncertainties about the meaning or enforceability of such agreements.

    5Gary Van Zeeland Talent Inc. v. Sandas, 84 Wis. 2d 202, 214, 267 N.W.2d 242 (1978).

    6Star Direct, 2009 WI 76, ¶¶ 20, 124.

    7 “[T]o enforce a restraint, the employee must present a substantial risk either to the employer’s relationship with his customers or with respect to confidential information.” Fields Fndtn. Ltd. v. Christensen, 103 Wis. 2d 465, 471, 309 N.W.2d 125 (Ct. App. 1981).

    8Lakeside Oil Co. v. Slutsky, 8 Wis. 2d 157, 162-63, 98 N.W.2d 415 (1959). See also Heyde Cos. v. Dove Healthcare LLC, 2002 WI 131, ¶ 16, 258 Wis. 2d 28, 654 N.W.2d 830; NBZ v. Pilarski, 185 Wis. 2d 827, 840, 520 N.W.2d 93 (Ct. App. 1994).

    9Farm Credit Servs. v.Wysocki, 2001 WI 51, ¶ 10, 243 Wis. 2d 305, 627 N.W.2d 444.

    10Star Direct, 2009 WI 76, ¶ 20; NBZ, 185 Wis. 2d at 840.

    11Wysocki, 2001 WI 51, ¶ 10, 243 Wis. 2d 305.

    12Zimmerman v. Brennan, 78 Wis. 2d 510, 514-15, 254 N.W.2d 719 (1977); Streiff, 118 Wis. 2d at 611.

    13Streiff, 118 Wis. 2d at 610-11; Heyde Cos., 2002 WI 131, ¶ 16, 258 Wis. 2d 28. The ambiguity concerning the scope of the penultimate directive is discussed at note 66, infra.

    14Star Direct, 2009 WI 76, ¶ 6.

    15Id. ¶ 7. The term route salesperson has an historic and specific meaning – a salesperson assigned a particular customer route that is routinely and regularly travelled. See, e.g., Chuck Wagon Catering v. Raduege, 88 Wis. 2d 740, 752-53, 277 N. W.2d 787 (1979). Technology and business changes, however, now permit the cultivation of relationships between employees and customers without actual or regular in-person contact. Whether there is any meaningful difference between these sales models for purposes of determining the enforceability of restrictive covenants is a proposition that remains unexamined by Wisconsin courts.

    16Star Direct, 2009 WI 76, ¶¶ 6, 28.

    17Id. ¶¶ 8-11.

    18Id. ¶¶ 9, 23.

    19Id. ¶ 10.

    20Id. ¶ 11.

    21Id. ¶ 9.

    22Id. ¶ 24. The court interpreted the clause “within a period of time of one year of Employee’s employment” as referring solely to the universe of past customers covered by the nonsolicitation provision, not to current customers as well. The court did not view this clause as describing the period during which the employee must have had contact with the past or current customer. The textual characterization of the restriction, above, suggests that the “one-year” clause was viewed as applying only to past customers and not specifying when the employee’s services, dealings, or obtaining of special knowledge occurred. Compare Equity Enters. Inc. v. Milosch, 2001 WI App 186, ¶ 15 n.4, 247 Wis. 2d 172, 633 N.W.2d 662.

    23Star Direct, 2009 WI 76, ¶ 12.

    24Id. ¶ 13.

    25Id. ¶ 14. The circuit court addressed the enforceability of the confidentiality clause, even though Star Direct did not allege a violation of that provision. Id. ¶ 60.

    26Id. ¶¶ 3, 15.

    27Justice Bradley, joined by Chief Justice Abrahamson, authored an opinion agreeing with the majority’s conclusion that Star Direct had not justified the business clause. They disagreed, however, with the majority conclusion that the customer clause was reasonable as applied to past customers, including those never serviced by Del Pra. They also rejected as inappropriate “the new interpretive tool created today by the majority that silence on an issue signals approval….” Id. ¶ 85 (Bradley, J., dissenting).

    28Id. ¶¶ 27-52, ¶¶ 59-64.

    29Id. ¶¶ 54-58. The court reasoned that the provision’s restriction against engaging “in any business which is substantially similar to or in competition with the business [of Star Direct]” must restrict competitive, as well as noncompetitive, activities if the disjunctive “or” was to be given effect.

    30Id. ¶¶ 79-82.

    31Id. ¶¶ 32, 38-41.

    32Id. ¶¶ 45-48.

    33Id. ¶¶ 49-51.

    34Id. ¶¶ 74, 76.

    35Id. ¶¶ 73, 78.

    36Id. ¶ 62 (citations omitted).

    37Id. ¶ 31.

    38Id. ¶¶ 9, 23-24.

    39Id. ¶ 32.

    40Id. ¶¶ 38-40.

    41Id. ¶ 40. The court explained that “past customers may have chosen to take their business elsewhere only temporarily” and cited the employer’s “significant effort and investment to win customers.”

    42Id. ¶ 38.

    43Id. ¶ 39.

    44Id.

    45Id. ¶ 41.

    46Id. ¶¶ 28-30, 40-41. Observing that Star Direct’s past customers “may have chosen to take their business elsewhere only temporarily,” the court, intentionally or not, suggested the possibility that an employer’s interests in postponing competition may not apply if the former customer explicitly communicated an intention to cease doing business with the employer, rather than merely raising questions about its intent through inaction.

    47Id. ¶¶ 33-37. The court cited its decisions in Rollins Burdick Hunter Inv. v. Hamilton, 101 Wis. 2d 460, 304 N.W.2d 752 (1981), and Wysocki, 2001 WI 51, 243 Wis. 2d 305. The court acknowledged that neither case discussed the past customer issue. Nonetheless, the Star Direct majority noted that the nonsolicitation provision deemed possibly valid in Hamiltoncould have included customers who chose to take their business elsewhere” and the covenant deemed valid in Wysocki included those who “may have chosen no longer to do business with the employer.” The court did not comment on the critical remarks offered by the court of appeals in Milosch 2001 WI App 186, ¶ 15 n.4, 247 Wis. 2d 172, concerning the inclusion of past customers within the scope of a nonsolicitation clause.

    48Star Direct, 2009 WI 76, ¶¶ 39, 42, 45, 48.

    49See text accompanying notes 41 – 47, supra. The court’s reliance on an arguably hypothetical employer interest to justify this restriction is made more troublesome by its failure to consider the certain impact of the restriction on the mobility of the employee. The court’s approach also appears to be inconsistent with the “well-established … statutory canons of construction that social legislation and statutes are to be liberally construed in favor of those intended to benefit from them.” Heyde, 2002 WI 131, ¶ 15, 258 Wis. 2d 28.

    50Star Direct, 2009 WI 76, ¶ 40 (emphasis added).

    51Id. (emphasis added).

    52Hamilton, 101 Wis. 2d at 469-71 (holding that reasonableness of restrictive covenant justified by access to confidential information cannot “be intelligently made without a consideration of the nature and character of such information, including the extent to which it is vital to the employer’s ability to conduct its business, the extent to which the employee actually had access to such information and the extent to which such information could be obtained through other sources,” as well as effect of restriction on employee’s ability to earn a living). The mere possibility of access to confidential information, supported only by the complaint and five affidavits, was deemed too “meager a factual record” to determine the reasonableness of such a restriction. Id. at 471.

    53 See note 47, supra.

    54Star Direct, 2009 WI 76, ¶ 42.

    55Id. ¶ 45. This explanation is curious, in part, because the only special knowledge referred to in the customer clause concerned the customer, rather than the employer.

    56Id. ¶ 44. Like other court decisions, the majority’s opinion in Star Direct also mischaracterized and unfairly limited the holding of Milosch by focusing on the fact that Milosch had been employed for 15 years: “The [Milosch] Court determined that a customer serviced 15 years earlier constituted too long a timeframe for the employer to have a protectable interest.” Id. ¶ 43. As the actual text of the Milosch holding makes clear, its criticism of a customer nonsolicitation restriction that failed to limit its restrictions to those customers with whom the employee had recent contact, was not limited to inclusion of customers who had dealings with the employee 15 years previously; this was merely offered as an illustration of what the court viewed as the unreasonable reach of the restriction due to its limitation on the right of an employee to deal with “any customer…[he] serviced at any time during his employment....” Milosch, 2001 WI App 186, ¶ 15 n.4, 247 Wis. 2d 172.

    57The one-year-prior-to-termination clause in the customer nonsolicitation covenant modified the period during which the customer did business with the employer. Nothing in the text of the provision or the court’s analysis suggested that the contract required that the employee have obtained special knowledge or had contact with the customer during that one-year period.

    58Star Direct, 2009 WI 76, ¶ 51. In reaching this result, the court also relied on NBZ, 185 Wis. 2d at 837-39, for the following proposition: “[E]mployers may not compel their existing employees to sign restrictive covenants without additional consideration.” Star Direct, 2009 WI 76, ¶ 50. This was not the holding of NBZ, which, instead, stands for the proposition that continued at-will employment may not be sufficient consideration to support a restrictive covenant agreement. Moreover, in Tatge v. Chambers & Owen, 219 Wis. 2d 99, 579 N.W.2d 217 (1998), the court contradicted the substance of the proposition by holding that an employer could require an employee to sign a restrictive covenant agreement, which allegedly was void under section 103.465, or terminate the individual.

    59Star Direct, 2009 WI 76, ¶ 60.

    60Id. ¶ 63.

    61Id. ¶ 11 (emphasis added).

    62Courts have long stressed that they will not depart from the plain meaning of a word – in this case, “any.” See, e.g., Erickson v. Gundersen, 183 Wis. 2d 106, 117, 515 N.W.2d 293 (Ct. App. 1994).

    63Star Direct, 2009 WI 76, ¶ 11 (emphasis added). The court’s failure to mention this language also appears to depart from the long-standing rule of construction that requires each word in a contract to be given effect. See, e.g., Goebel v. First Federal Sav. & Loan Ass’n, 83 Wis. 2d 668, 680, 266 N.W.2d 352 (1978).

    64Star Direct, 2009 WI 76, ¶ 62.

    65See supra note 13 and accompanying text.

    66Heyde, 2002 WI 131, ¶ 16, 258 Wis. 2d 28. The meaning of this mandate is itself ambiguous, but it may have been best explained in Sysco Food Services v. Zicarelli, 445 F. Supp. 2d 1039, 1049 (E.D. Wis. 2006) (citation omitted): “[W]hen the court stated that covenants ‘will not be construed to extend beyond their proper import or further than the language of the contract absolutely requires,’ it had in mind that valid restrictions should be interpreted narrowly so that less conduct is restricted. The court did not mean that overly-broad and invalid restraints should be interpreted more narrowly. Indeed, such meaning would run counter to the immediately following phrase that restrictive covenants ‘are to be construed in favor of the employee.’”

    67Star Direct, 2009 WI 76, ¶ 62 (citations omitted); compare with Sysco Food Servs., 445 F. Supp. 2d 1039.

    68“Any covenant … imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be reasonable.” (Emphasis added.) Wis. Stat. § 103.465.

    69See Streiff, 118 Wis. 2d 602, 348 N.W.2d 505.

    70Id. at 612.

    71Id.at 613.

    72Star Direct, 2009 WI 76, ¶ 74. The court’s reliance on footnote 4 in Streiff as support for this conclusion is misplaced; the footnote simply does not support the proposition for which it is cited.

    73Id. ¶ 72.

    74Id. ¶ 76. The court’s observation that section 103.465’s “prescriptions … apply to any ‘covenant,’ not to the whole employment contract” is puzzling. Taken literally, this statement would eliminate the need for any consideration of divisibility and overrule Streiff – something clearly not embraced in the court’s holding.

    75Id. ¶¶ 72-73, 77.

    762001 WI App 92, ¶ 11, 242 Wis. 2d 733, 625 N.W.2d 662. This approach reached its apogee in JT Packard & Assoc. v. Smith, 429 F. 2d 1052 (W.D. Wis. 2005), in which Judge Crabb concluded that a noncompete provision and a customer nonsolicitation provision, each contained in a separate construct, were indivisible. The conclusion reached in that case is likely no longer valid given Star 
    Direct
    ’s indivisibility test.

    77Star Direct, 2009 WI 76, ¶ 77 n.12.

    78Id. ¶ 78. This test is puzzling. Given its textual focus, the court’s caution that “[t]his inquiry will be fact-intensive and depend on the totality of circumstances” seems mistaken.

    79One can posit a contract with multiple noncompete provisions, each with a different territorial scope. Although each restriction arguably can “be read or interpreted without reference to the other,” it is difficult to envision a court permitting such a naked attempt at “blue-penciling” by contract and concluding that the restrictions are divisible.

    80Id. ¶¶ 106, 110 (Bradley, J., concurring in part, dissenting in part). The dissenting justices cautioned that interpreting “the court’s silence on an issue that could have been implicated in a dispute as a tacit decision on its merits … would force the court to reach out and decide issues not presented by the parties and without full briefing and argument on the merits.”

    81Id. ¶ 37 n.7 (emphasis in original).

    82Id.

    83In her dissent, Chief Justice Abrahamson characterized the analytical framework heretofore established by the legislature and courts for determining the enforceability of restrictive covenants as neither “pro-employer” nor “pro-employee.” Id. ¶ 125.

    84Id. ¶ 110 (Bradley, J., concurring in part, dissenting in part).