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Thursday, June 13, 2024 | Back issues
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Wisconsin Tackles Noncompete Covenants

MADISON, Wisc. (CN) - Merely continuing employment may not be enough consideration to require signature of a noncompete covenant, depending what the Wisconsin Supreme Court decides.

The court heard arguments Wednesday in Runzheimer International v. Friedlen, in which a former employee and his new employer claimed that a noncompete contract with Runzheimer was unenforceable.

David Friedlen had been an at-will employee of Runzheimer for 20 years when he was told he must sign a "restrictive covenant agreement," according to a case summary from the Wisconsin Supreme Court.

Friedlen claims he was told he would be fired if he did not sign it, but was not offered any other incentives for signing.

He was fired two years after signing the agreement and went to work for Corporate Reimbursement Services, one of Runzheimer's competitors.

The Milwaukee County Circuit Court granted summary judgment to Friedlen in a lawsuit Runzheimer filed against him and CRS in an attempt to enforce the noncompete agreement.

Runzheimer appealed, and the Court of Appeals certified the case.

"A decision by the Supreme Court is expected to clarify whether covenants not to compete entered into many years after employment begins require consideration and, if so, what constitutes consideration," according to a case summary from the state supreme court.

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.

Justice Roggensack said that Friedlen did not gain anything by signing the noncompete agreement, but actually lost something.

"He had to not do what he had done for 20 years," she said, adding: "The employer does not give up anything."

Runzheimer is asking Wisconsin to pass a law stating that continued at-will employment constitutes consideration, which is a requirement for noncompete agreements under state law.

However, Apfeld argued in court, if the court does not agree to that, the addition of further employment beyond the signing of the covenant should suffice as consideration.

This raises the issue of the court determining the adequacy of consideration, which case law stipulates it does not do, the certification states.

When it comes to this kind of contract law, Chief Justice Abrahamson said: "You have to look at what is the easiest thing that will cause the least litigation."

A flat rule - "rough justice" - would solve that problem, Apfeld argued.

Abrahamson proposed a requirement that signing a noncompete be followed with a fixed-term contract and removal of at-will status.

"What about that rough justice?" she asked Apfeld. "Rough enough?"

Such a rule would surprise Wisconsin employers, Apfeld said, and go against the precedent set in such cases in other judicial jurisdictions.

"This is a good place to start," Chief Justice Abrahamson replied.

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