COURT OF APPEALS DECISION DATED AND FILED November 21, 2007 David R. Schanker Clerk of Court of Appeals |
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This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports. A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. § 808.10 and Rule 809.62. |
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APPEAL
from a judgment and an order of the circuit court for
Before Higginbotham, P.J., Dykman and Vergeront, JJ.
¶1 VERGERONT, J. Wisconsin Prosthetics & Orthotics, Inc.[1] (WPO) seeks to enforce a noncompete provision in an employment agreement against Perry Alger, a former employee. WPO appeals the circuit court order holding the agreement void and unenforceable for noncompliance with Wis. Stat. § 103.465[2] and granting summary judgment in Alger’s favor.
¶2 We conclude that under Mutual Service Casualty Insurance Co. v. Brass, 2001 WI App. 92, 242
BACKGROUND
¶3 The relevant facts for purposes of this appeal are not
disputed. WPO is in the business of
producing and servicing prosthetics and orthotics and has offices in
¶4 In June 2006, Alger resigned his employment with WPO and began working as an orthotist with Great Lakes Orthotics and Prosthetics, located fifteen miles from WPO’s Menasha office.[3] WPO initiated this action, contending that Alger’s employment with Great Lakes Orthotics breached the noncompetition and nondisclosure agreement and seeking injunctive and monetary relief.
¶5 Both parties filed motions for summary judgment. WPO’s argument was limited to the noncompete provision; it did not pursue its claim that Alger breached the nondisclosure provision. WPO’s position was that the restrictions in the noncompete provision were reasonably necessary to protect its interests and were therefore valid under Wis. Stat. § 103.465, and the reasonableness of the nondisclosure provision was not material to its motion. Alger countered that both the noncompete provision and the nondisclosure provision were unreasonable and therefore both were void and unenforceable. He also argued that case law did not permit enforcement of the noncompete provision if the nondisclosure provision was unreasonable.
¶6 The circuit court granted Alger’s motion and dismissed the
complaint. The court concluded that the
noncompete and nondisclosure provisions were indivisible under Streiff
v. American Family Mutual Insurance, Co., 118
DISCUSSION
¶7 WPO contends that the circuit court erred in granting summary judgment in favor of Alger, because, even if the nondisclosure provision is unreasonable, the noncompete provision is divisible from the nondisclosure provision and is enforceable. It is enforceable, WPO asserts, because it is reasonably necessary to protect its legitimate interests in maintaining its source of referrals from its business, the time and territory restrictions are reasonable, and it is neither oppressive to Alger nor against public policy. In identifying its legitimate interests, WPO relies on the affidavit of its president who avers that the vast majority of its business comes from area physician and clinic referrals, Alger was encouraged to and did develop special relationships with the referring physicians and clinics while employed by WPO, and he was the only WPO employee who had any contact with physicians and clinics. WPO contends that WPO has a legitimate interest in protecting these referring sources from competition from Alger.
¶8 Alger responds that the circuit court properly concluded that both provisions are indivisible and the unreasonableness of the nondisclosure provision invalidates the noncompete provision. He also disputes that the noncompete agreement, when considered on its own, is valid.
¶9 We do not address the issue whether the two provisions are indivisible, because we conclude the noncompete provision is invalid on its own.[5]
¶10 We review a grant of summary judgment by applying the same methodology
as the circuit court and our review is de novo.
Pinter v. American Family Mut. Ins. Co., 2000 WI 75, ¶12, 236
¶11 The issue of law presented on this appeal involves the construction and application of Wis. Stat. §103.465, in light of existing case law, to the undisputed facts. Section § 103.465 provides:
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.
¶12 This statute expresses a strong public policy against the
enforcement of unreasonable trade restraints on employees. Tatge v. Chambers & Owen, Inc.,
219
¶13 The noncompete provision at issue here states in relevant part:
2. Covenant not to compete. Employee agrees that during the term of this employment with the Company, he will devote substantially all of his working time and best efforts to that employment.
In addition, the Employee agrees that during the term of this employment of the Company and for a period of twelve (12) months thereafter if the Employee voluntarily terminates his employment or has his employment terminated by the Company for just cause and within a twenty-five (25) mile radius of the Company location at which the employee is principally employed, he will not directly compete with the Company by engaging in any of the following acts, which actions shall be considered violations of this Agreement.
a. Employee shall not have any interest as a partner, proprietor, owner, stockholder, principal, agent, consultant, director or officer in any enterprise in competition with the business or the Company, other than ownership of securities of a publicly held corporation of which employee owns no more than 1% of any class of outstanding class securities.
b. Employee shall not, within the geographical limitations set forth above and for the period of one (1) year, become employed in any business or undertaking which competes in any manner with that of the Company, nor will, during that period, render any services to any person, firm or corporation any information concerning the business, products, prices, customers, customer lists, or affairs of company except when and as requested to do in and about the performance of his duties under his employment.
(Emphasis added.)
¶14 Thus under clause (b) Alger was prohibited, for one year and within a twenty-five-mile radius of the location where he had worked, from becoming “employed in any business or undertaking which competes….”[6] Because there is no limitation on the capacity in which Alger may be employed, he is restricted from any employment in a business that competes with WPO regardless of whether the new position is one in which Alger would utilize the physician and clinic contacts he developed at WPO. Alger argues that a prohibition on employment in any capacity with a competitor is broader than reasonably necessary to protect WPO’s legitimate interests in the referrals that Alger had contact with, and the noncompete is therefore overbroad under Brass.[7]
¶15 In Brass we considered a provision that was similar in that it
prohibited an employee from being employed in any capacity, post-termination,
by a particular competitor. The employee
there had been employed by an insurance company as an insurance agent and the
clause provided that, following termination, he would not “engage in or be
licensed as an Agent … or in any way be connected with the property, casualty,
health or life insurance business as a representative or employee of the American
National Ins. Co … within a period of three years from the date of …
termination….” Brass, 242
prohibits [the employee] from accepting any type of employment with American National. This indicates, for example, that [he] could not work for American National as a claims adjuster or even as a janitor. It is unreasonable for [his prior employer] to prohibit [him] from holding any position at American National. [This provision] in its overbreadth, fails….
¶16 WPO does not directly address Alger’s argument based on Brass; indeed, WPO does not discuss Brass in its reply brief. It asserts in reply that
the non-compete does not seek to define its competitors as broadly as Alger suggests. WPO is merely seeking to enjoin Alger from directly competing with its legitimate business interests by creating a company which provides nearly identical services to that of WPO, serving the very same referral sources he developed through employment at WPO.
However, WPO does not explain how the language of the noncompete provision means something other than a prohibition on employment in any capacity with a competitor.
¶17 It appears that WPO’s position is that, despite the broad
wording of the activity proscribed in clause (b), the noncompete provision is
valid because Alger’s actual conduct would violate a narrower restriction that
would be reasonably necessary to protect its legitimate business
interests. However, that approach is
similar to the court’s approach in Fullerton Lumber Co. v. Torborg, 270
Wis. 133, 70 N.W.2d 585, where the court concluded that a ten-year restriction
on the specified activity was unreasonable, but a shorter period would be
reasonable and enforceable; the court ultimately determined that a three-year
restraint was reasonable and enforceable.
See also Fullerton Lumber Co. v. Torborg, 274
The legislator wanted a restraint containing overly broad and invalid provisions to be struck down in its entirety; he apparently did not want the court to give effect to an unreasonable restraint to the extent it might be reasonable. The objection to the “Torberg” [sic] practice, as the legislator noted, is that it tends to encourage employers possessing bargaining power superior to that of the employees to insist upon unreasonable and excessive restrictions, secure in the knowledge that the promise will be upheld in part, if not in full.
118
¶18 The last sentence of Wis.
Stat. § 103.465 plainly expresses this intent: “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 as would be a reasonable restraint.” Thus, in deciding whether a noncompete
covenant is enforceable, we do not first inquire what the employee did and
whether the employer could reasonably restrict that conduct. Instead, we focus on the noncompete covenant
and first determine whether it is enforceable under § 103.465. That inquiry depends upon facts such as the
nature of the employer’s business and the nature of the employee’s position
with the employer. For example, in Brass
it was undisputed that the employee immediately upon termination began working
for American National as an insurance agent and proceeded to contact the
customers of its former employer, 242
¶19 WPO may also be arguing that the language of the noncompete did
not need to be more specific because it was obvious that Alger would not be
employed by any competitive business except to work as an orthotics technician
as he had done at WPO. However, we
rejected a similar argument in Geocaris v. Surgical Consultants, Ltd.,
100
We reject the trial court’s conclusion that the restriction was reasonable because [the employee] was not likely to practice medicine in any capacity other than a surgeon. Although this fact may render immaterial the excessive aspect of the restriction, it is not material to the issue of whether the restriction was reasonably necessary for [the employer’s] protection.
¶20 In summary, although the protection of referral contacts has
been recognized as a legitimate interest for purposes of a restraint on
competition by a an employee, the employer must establish that the restrictive
covenant imposes a restraint no greater than reasonably necessary.
By the Court.—Judgment and order affirmed.
Not recommended for publication in the official reports.
[1] Wisconsin Prosthetics & Orthotics, Inc. is the wholly owned subsidiary of Benchmark Medical Holdings, Inc., which is also a plaintiff in this action. However, we refer only to WPO unless it is necessary to separately refer to Benchmark.
[2] All references to the Wisconsin Statutes are to the 2005-06 version unless otherwise noted.
[3] The affidavit of WPO’s president avers that it had an agreement with Administaff Companies, Inc. from March 2000 to April 2006 under which Administaff managed administrative functions and improved employee benefits; this did not affect its supervision of Alger and its full responsibility of the operations of the corporation; after its merger with Benchmark (see footnote 1) in April 2006, nothing changed in its operations; and Alger resigned in June 2006. In his affidavit, Alger refers to being “terminated” by Administaff Companies, Inc. in April 2006 and “thereafter” becoming an employee of Benchmark. His affidavit does not address when he left Benchmark or WPO or the circumstances. Because neither party on appeal argues that the precise relationships between Alger and Administaff or Alger and Benchmark matter to the issues raised on this appeal, we conclude any disputes between WPO and Alger over his relationship with these entities are not material, and we treat it as undisputed that Alger was employed by WPO. Because Alger does not dispute that he resigned in June 2006, we treat that as undisputed as well.
[4] In
Streiff
v. American Family Mutual Insurance, Co., 118
[5] Alger makes the additional argument that the issue of the indivisibility of the two provisions is not properly before this court because WPO did not raise it in its initial summary judgment motion. Although we are not deciding the merits of the indivisibility issue, we clarify for the parties that there is no procedural impediment to our doing so. WPO did not raise the lack of indivisibility in its initial brief, but it was not obligated to do so. Its position was, simply, that the noncompete provision was valid and Alger breached it. In Alger’s responsive brief he raised the issue of indivisibility as a defense, arguing that the unreasonableness of the nondisclosure provision made the entire agreement void. WPO disputed that proposition in its reply brief, asserting that the nondisclosure provision was immaterial to the enforceability of the noncompete provision. In response, Alger’s attorney sent a letter to the court elaborating on his indivisibility position. The court took up this issue and decided it in Alger’s favor. There is no merit to Alger’s contention that he did not have a chance to fully develop his position on the issue in the circuit court; and, obviously, he has the opportunity to fully present his position on appeal, which he has done.
However, because our review is de novo, we need not decide the indivisibility issue if another issue is dispositive. See Doe v. General Motors Acceptance Corp., 2001 WI App 1999, ¶7, 247 Wis. 2d 564, 635 N.W.2d 7 (we may affirm the circuit court’s grant of summary judgment on a different issue, even if the circuit court did not address it). As noted above, we conclude the issue of the validity of the noncompete, when considered alone, is dispositive. This, too, was an issue that both parties briefed below, although the circuit court did not decide it, and they have both briefed it on appeal.
[6] We observe that the phrase following “nor” in clause (b) does not read coherently because there appears to be some missing words between “corporation” and “any information.” However, we need not resolve the meaning of this restriction because we are concerned with the restriction preceding “nor.”
[7] Alger also argues that the noncompete clause, when considered on its own, is unreasonable for other reasons, but it is not necessary for us to address these.