Wisconsin Court Upholds Noncompete Agreement

MADISON, Wis. (CN) - An man who claims that his bosses should have offered him consideration, other than letting him keep his job, to make him sign a noncompete agreement lost his Wisconsin Supreme Court battle Thursday.

David Friedlen had worked for Runzheimer International, a provider of employee mobility services, for more than 15 years when he was told he must sign a "restrictive covenant agreement," according to the opinion written By Justice David Prosser.

Friedlen, an at-will employee of the company, claimed he was told he would be fired if he did not sign it, but was not offered any other incentives to agree to its terms.

Two years later, he was fired and went to work for Corporate Reimbursement Services, one of Runzheimer's competitors.

Runzheimer sued Friedlen and CRS in an attempt to enforce the noncompete agreement, and the Milwaukee County Circuit Court granted summary judgment to Friedlen.

Runzheimer appealed, and the Court of Appeals certified the case. The Supreme Court heard oral arguments on the case on Oct. 1, 2014.

One of the questions considered was whether requiring a signature on a noncompete agreement at the start of at-will employment was the same as requiring it some years in.

Friedlen's attorney, Jeffrey Rosin, said no: An employee being hired is gaining something - a job - from the contract. If required to sign when already employed, the employee gains nothing from signing.

But in Friedlen's case, employment continued for two years after the agreement was signed, Runzheimer attorney Michael Apfeld pointed out.

If Runzheimer had come to Friedlen the day after he signed the agreement, saying "Aha - gotcha - you're fired," Friedlen's argument would be far more convincing, Apfeld said.

Prosser's opinion falls more in line with Apfeld's argument.

Prosser wrote that because Runzheimer International Ltd. kept its promise not to fire David Friedlen at the time it required his signature and for reasons related to the non-compete agreement, he received consideration to sign.

"In these situations, the employer is not getting 'additional consideration' for the employee's continued employment, and, in the absence of an employment contract, the employee is still free to leave in the future," he wrote.

Prosser went on to explain that "Runzheimer's promise not to fire Friedlen if he signed the covenant was not illusory because it was not a promise implicating Runzheimer's future discretionary conduct.

"Rather, Runzheimer's promise was that it would not fire Friedlen at that time and for that reason," the judge wrote.

Should an employer fire an employee soon immediately after requiring them to sign a non-compete agreement, the employee would have fraudulent inducement and good faith claims, the court said, adding that holding otherwise might allow employers to "circumvent the law."

"If we were to hold that consideration beyond continued employment is necessary in cases like this, an employer might simply fire an existing at-will employee and then re-hire the employee the next day with a covenant not to compete," Prosser wrote.

Chief Justice Shirley Abrahamson, recently the subject of an attempted ouster supported by Prosser, concurred with his opinion, writing to clarify that contract claims would fail if Friedlen was fired from at-will employment shortly, if not immediately, after signing an agreement.

"Thus, to show that Runzheimer breached the implied covenant of good faith and fair dealing, Friedlen cannot complain of acts specifically authorized by his agreement with Runzheimer," Abrahamson wrote."If all Runzheimer promised was to forbear from immediately terminating Friedlen's at-will employment, on what basis could Friedlen assert a breach of the covenant of good faith and fair dealing had Runzheimer fired Friedlen shortly after he signed the covenant not to compete?" she continued. "The answer seems to be none."

An attorney for Friedlen could not immediately be reached for comment.

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