Previous
Page
Can employers force employees to sign
noncompete agreements as a condition of their employment?
In further recognition of the equities between the parties,
Wisconsin courts have adopted rigorous canons of construction
for restrictive covenants in employment contracts.46 In addition,
Wisconsin law places upon the employer a heavy burden in establishing
the reasonableness of these covenants.47 An employer attempting
to enforce such an agreement usually will be required to address
public policy arguments based upon encouraging employee mobility
and the need for unrestrained competition to further the welfare
of the consumer and society in general.48 In addition, Wisconsin
courts have determined that three additional factors must be
considered in determining the validity of nondisclosure provisions.49
Although overlooked by the dissent, the protections afforded
by the standards interpreting section 104.365 are available to
the employee whether the employee challenges the reasonableness
of a restrictive covenant in a wrongful discharge case, or whether
the employee litigates the issue post-termination in an enforcement
action. As such, there is no need to extend the breadth of section
104.365 to wrongful discharge actions in an effort to provide
greater protection for the employee.
Michael J. Cohen, Marquette 1986, is a shareholder
in the Milwaukee law firm of Meissner Tierney Fisher & Nichols
S.C. His practice emphasis is business, environmental, and insurance
coverage litigation.
William T. Stuart, Marquette 1997, is an associate
with Meissner Tierney Fisher & Nichols S.C. He was former
editor-in-chief for the Marquette Law Review and focuses his
practice on business, environmental, and insurance coverage litigation
and real estate. |
In sum, it is apparent from the burdens facing the employer
that the Legislature and the courts have well considered the
respective risks associated with restrictive covenants and
have provided a proper balance reflective of the equities
between the parties and the circumstances surrounding the
execution of such arrangements.
Moreover, the majority noted, the position advocated by the
dissent is unworkable because it clearly puts the proverbial
"cart before the horse" by forcing courts to evaluate
the reasonableness of a restrictive covenant in a factual void
and under circumstances in which the employer has not even sought
to enforce the agreement. Under Wisconsin law, the validity of
such agreements is to be determined on the basis of a thorough
examination of the particular circumstances that surround it.50
This also proves what is perhaps the most critical flaw in the
dissent's position: An employer does not enforce a nondisclosure
or noncompete provision by requiring an employee to sign the
agreement. As the majority opinion points out, enforcement can
only occur after: 1) the parties actually agreed to its terms;
2) the employee sought to disclose allegedly confidential information
or sought to compete with the employer; and 3) the employer attempted
to prevent the disclosure or competition by calling upon the
agreement.51
Finally, the dissent ignores the fact that it is the Legislature's
function to revise the protections afforded under section 103.465
if in fact the statute does not adequately address the risks
associated with such agreements. To date the Legislature has
not seen fit to do so and there is no compelling reason for change.
Conclusion
The authors believe that the risks associated with restrictive
agreements are in fact properly balanced by the statute, which
was created to level the playing field in this arena. The employee
is not placed in a lose-lose situation when requested to sign
a restrictive agreement. If the employer's restrictions
are unreasonable, the statute will protect the employee regardless
of whether the employee challenges the restriction by declaratory
judgment prior to actually competing, or litigates the issue
after the employment relationship has terminated. If the employer
abuses its bargaining power and is overly aggressive with its
covenant, the employer loses the restriction entirely, including
those portions of the covenant that may be reasonable. This creates
a balance that properly allocates the risks of the restrictive
covenant as between the parties.
Endnotes
1 Tatge v. Chambers & Owen Inc., 219 Wis. 2d 99,
579 N.W.2d 217 (1998).
2 The court in Tatge also addressed the issue of whether
a cause of action for breach of an employment contract is actionable
in tort for misrepresentation under Wisconsin law. Declining
to give its "blessing to such an irreverent marriage of
tort and contract law," the court held that the breach of
an employment contract is not actionable in tort. Tatge,
219 Wis. 2d at 107.
3 Id. at 124-28.
4 Wisconsin first recognized the employment at-will doctrine
in Prentiss v. Ledyard, 28 Wis. 131, 133 (1871). See,
e.g., Hausman v. St. Croix Care Center Inc., 214
Wis. 2d 654, 662, 571 N.W.2d 393 (1997) ("The employment-at-will
doctrine is an established general tenet of workplace relations
in this jurisdiction.").
5 Brockmeyer, 113 Wis. 2d at 567 (internal quotation
marks and citations omitted).
6 Id. at 567-68. At the time, the court in Brockmeyer
joined the courts of 42 states in recognizing exceptions to the
employment-at-will doctrine. See Wandry v. Bull's
Eye Credit, 129 Wis. 2d 37, 40, 384 N.W.2d 325 (1996).
7 Brockmeyer, 113 Wis. 2d at 572-73. The court concluded
that the cause of action for wrongful discharge created by its
decision is a contract action rather than a tort action. Id.
at 575-76.
8 Id. at 574. In a concurring opinion joined by justices
Callow and Ceci, Justice Day questioned whether the new rule
set forth by the majority would in fact result in a more stable
market, positing that it was more likely that more and more discharges
previously viewed as nonactionable would be "vehicles
to test the ingenuity of the advocate to find some constitutional,
statutory or regulatory provision that can be cited in a
complaint for wrongful discharge." Id. at 580-81.
9 Id. at 573-74.
10 Wandry v. Bull's Eye Credit, 129 Wis. 2d 37,
384 N.W.2d 325 (1996).
11 Id. at 46-47. The court further expanded the Brockmeyer
exception in Winkelman v. Beloit Memorial Hosp., 168 Wis.
2d 12, 483 N.W.2d 211 (1992), when it determined that public
policy also could be evinced by an administrative rule.
12 Wandry, 129 Wis. 2d at 46-47. Wandry involved
section 103.455 of the Wisconsin Statutes, which prohibits an employer
from deducting certain work-related losses from an employee's
wages without following certain procedures to establish the responsibility
for the loss. Id. The court concluded that it did not
need to determine whether Bull's Eye, Wandry's employer,
violated the statute to determine whether Wandry's complaint
constitutes a viable claim for wrongful discharge. Id.
at 46-47. Rather, the court concluded that the statute articulates
a fundamental and well-defined public policy proscribing economic
coercion by an employer upon an employee to bear the burden of
a work-related loss when the employee has no opportunity to show
that the loss was not caused by the employee's carelessness,
negligence, or willful misconduct, as was alleged by Wandry.
Id.
13 Bushko v. Miller Brewing Co., 134 Wis. 2d 138, 396
N.W.2d 167 (1986).
14 Id. at 142. In Bushko the employee conceded
that he was not terminated for refusing to violate any public
policy. Id. Rather, the employee claimed he was terminated
because he complained about Miller's practices in plant
safety, hazardous wastes, and "honesty" involving personnel
and expense records. Id. As the court noted, the Brockmeyer
court previously had rejected the broader "acting consistent
with" public policy standard urged by the employee
in Bushko. Id. at 145.
15 Hausman v. St. Croix Care Center, 214 Wis. 2d 654,
571 N.W.2d 393 (1997). Unlike the wrongful discharge cases that
preceded it, the court's opinion in Hausman, authored
by Justice Walsh Bradley, was unanimous.
16 Id. at 668. The court in Hausman held that
while the employees' actions were "not in violation
of a Bushko command, their actions were in response to
a more significant legal command, one imposed by the Legislature
to further promote the strong public policy of protecting nursing
home residents." Id. at 666-67. The Hausman court
expressly declined to adopt a "whistle-blower" exception
to the at-will doctrine as being "contradictory to established
precedent," which undoubtedly referred to Bushko.
Id. at 665-66.
17 Id.
18 After several years of employment with Chambers & Owen,
Tatge signed an Employee Handbook receipt that acknowledged his
relationship was at-will. Tatge, 219 Wis. 2d at 102.
19 Id.
20 Id. at 103.
21 Id.
22 Id. at 104.
23 Id. The circuit court also denied Chambers &
Owen's motion to dismiss Tatge's breach of contract
and misrepresentation claims, concluding that the misrepresentation
claims should be tried only as to the alleged statements that
Tatge's employment would be ongoing and that he could only
be fired for cause. Id. At trial, which was bifurcated,
the jury determined that there was insufficient evidence of a
contract other than at-will, but found that Chambers & Owen
made a representation of fact that Tatge was entitled to ongoing
employment and termination only for cause. Id. The trial
court subsequently dismissed both the intentional and strict
liability misrepresentation claims, but allowed the negligent
misrepresentation claim to go to the jury, which found in favor
of Tatge and assessed damages at $250,000. Id. at 105.
The court of appeals subsequently reversed this award.
24 Id. The court of appeals also held that a breach
of employment contract is not actionable in tort for misrepresentation.
25 The nondisclosure provision in the Management Agreement
did not contain a time limitation. See Gary Van Zeeland Talent
Inc. v. Sandas, 84 Wis. 2d 202, 267 N.W.2d 242 (1978) (nondisclosure
agreement that does not contain a time limitation is unreasonable
and unenforceable under section 103.465).
26 Tatge, 219 Wis. 2d at 114.
27 Id. at 114-15. As an initial matter, the court concluded,
citing to its previous holding in Van Zeeland as dispositive,
that section 103.465 applies to the nondisclosure provisions
in the Management Agreement. Id. at 111-12.
28 Id.
29 Id. at 116.
30 Id.
31 Id. at 116-18.
32 Id. at 118.
33 Id. at 117-18.
34 Id.
35 Id. at 122-23.
36 Id.
Section 103.465 states that covenants not to
compete are "lawful and enforceable only if the restrictions
imposed are reasonably necessary for the protection of the employer
or principal." Wis. Stat. § 103.465 (1995). The statute
further provides that "[a]ny such restrictive covenant imposing
an unreasonable restraint is illegal and unenforceable
even as to so much of the covenant or performance as would be
a reasonable restraint." Id. (emphasis added).
37 Id. at 123 (quoting Streiff v. American Family
Mut. Ins. Co., 118 Wis. 2d 602, 608-09, 348 N.W.2d 505 (1984)).
38 Id. at 127-28.
39 Id. at 128-29.
40 Id. at 124. The majority calls this position "perplexing"
and its reasoning "unfounded." Id. at 116 n.9.
41 Id. at 128-29.
42 See Wis. Stat.
§ 103.465.
43 See, e.g., Van Zeeland, 84 Wis. 2d at 219-20
(citing Restatement (Second) of Contracts § 330 cmt. g (Tentative
Draft No. 12, 1977)).
44 Tatge, 219 Wis. 2d at 124-25.
45 Id. at 125.
46 Restrictive covenants are prima facie suspect; they must
withstand close scrutiny to be considered "reasonable";
they will not be construed to extend beyond their proper import
or further than the language of the contract absolutely requires;
and they are to be construed in favor of the employee. Streiff,
118 Wis. 2d at 611 (citations omitted).
47 The employer must prove that the covenant: 1) is necessary
for the protection of the employer, that is, the employer must
have a protectable interest justifying the restriction imposed
on the activity of the employee; 2) provides a reasonable time
limitation; 3) provides a reasonable territorial limit; 4) is
not harsh or oppressive as to the employee; and 5) is not contrary
to public policy. Chuckwagon Catering Inc. v. Raduege,
88 Wis. 2d 740, 751, 277 N.W.2d 787 (1979).
48 See, e.g., Van Zeeland, 84 Wis. 2d at 216-28.
49 1) The extent to which the information sought to be protected
is vital to the employer's ability to conduct its business;
2) the extent to which the employee had access to that information;
and 3) the extent to which such information could be obtained
through other sources. Rollins Burdick Hunter of Wisconsin
Inc. v. Hamilton, 101 Wis. 2d 460, 470, 304 N.W.2d 752 (1981).
50 The dissent even acknowledged that under the facts presented
in Tatge there was some doubt about the legality of the nondisclosure
agreement at issue, which of course was being reviewed without
any operative facts as to what the employer sought to protect.
Tatge, 219 Wis. 2d at 126 n.3.
51 Id. at 116 n.9.
|