Farm Credit Services v. Wysocki

• Decision Date: 30 May 2001
• Docket Number: No. 99-1013.,99-1013.
• Citation: 243 Wis.2d 305,2001 WI 51,627 N.W.2d 444
• Parties: FARM CREDIT SERVICES OF NORTH CENTRAL WISCONSIN, ACA, Plaintiff-Appellant-Petitioner, v. David WYSOCKI, Defendant-Respondent.
• Court: Wisconsin Supreme Court

243 Wis.2d 305

2001 WI 51

627 N.W.2d 444

FARM CREDIT SERVICES OF NORTH CENTRAL WISCONSIN, ACA, Plaintiff-Appellant-Petitioner, v. David WYSOCKI, Defendant-Respondent.

No. 99-1013.

Supreme Court of Wisconsin.

Oral argument January 31, 2001.

Decided May 30, 2001.

For the plaintiff-appellant-petitioner there were briefs by Jerry W. Slater and Kelley, Weber, Pietz & Slater, S.C., Wausau, and oral argument by Jerry W. Slater.

For the defendant-respondent there were briefs by Gary L. Dreier and First Law Group, S.C., Stevens Point, and oral argument by Gary L. Dreier.

An amicus curiae brief was filed by Eric H. Rumbaugh, Donald A. Daugherty, David A. Dixon and Michael Best & Friedrich, LLP, Milwaukee, and oral argument by Eric H. Rumbaugh on behalf of Wisconsin Manufacturers and Commerce.

¶ 1. JON P. WILCOX, J.

This case presents two issues. The first issue is whether the restrictive covenant in David Wysocki's (Wysocki) 1983 employment agreement with Production Credit Association (PCA) of Wausau is void as a matter of law because the geographic area in which PCA of Wausau was authorized to conduct business was expanded through a 1986 merger. Because we find that the covenant not to compete here is narrowly tailored to a customer list and does not contemplate a geographic restriction, we rule that it is not per se invalid. Therefore, we remand the case to the circuit court to determine whether the covenant not to compete was "reasonably necessary for the protection of the employer or principal." Wis. Stat. § 103.465 (1997-98).

¶ 2. The second issue is whether Farm Credit Services (FCS) is the same corporation as PCA of Wausau, which contracted with Wysocki in 1983. Reviewing the two plans of merger in light of the relevant statutes, we conclude that PCA of Wausau is the surviving corporation of both mergers and, therefore, FCS is entitled to enforce the covenant not to compete provision in Wysocki's employment agreement. Accordingly, on both issues, we determine that summary judgment in favor of Wysocki was inappropriate.

¶ 3. FCS brought this action against Wysocki to enforce a covenant not to compete provision in his 1983 employment agreement with PCA of Wausau. Wysocki moved for summary judgment, arguing that Wysocki did not contract with FCS. The circuit court for Portage County, Judge James M. Mason presiding, found that FCS was not the same entity as PCA of Wausau and, therefore, was not entitled to enforce the covenant. The circuit court also granted summary judgment in favor of Wysocki on the ground that the covenant not to compete was unilaterally enlarged through the two mergers and was thus void. The court of appeals, in a split decision, affirmed the decision of the circuit court. Farm Credit Services of North Central Wisconsin, ACA v. Wysocki, 2000 WI App 124, ¶ 19, 237 Wis. 2d 522, 614 N.W.2d 1. The majority assumed, "arguendo, that FCS is the same corporation as PCA," but that the covenant not to compete was void because the "`specified territory,' as that term is used in Wis. Stat. § 103.465, has been unilaterally changed by FCS." Id. at ¶ 19. We then granted FCS's petition for review.

I

¶ 4. The basic facts are undisputed for the purposes of this review on motion for summary judgment. In 1983 Wysocki signed an employment agreement with PCA of Wausau as a "Related Services Coordinator/Loan Officer" in order to provide "accounting, bookkeeping, or prepare tax returns for PCA membership." PCA of Wausau was authorized to serve five counties and part of a sixth: Lincoln, Marathon, Portage, Price, Wood, and a portion of Taylor. As stated in its employment contract with Wysocki, PCA of Wausau "is a corporation under the Farm Credit Act of 1971, as amended, and is in the business of making agricultural loans and providing related services, including bookkeeping, accounting, and income tax consultation and service for its customers." This employment contract contained the following covenant not to compete:

Post-employment Competition. In consideration of the special training and materials provided to Employee by PCA and the preparation of tax returns for persons engaged in agriculture and confidential information made available to Employee by PCA concerning the financial affairs of its members, including, in particular, information generated by the Agrifax program, it is agreed that the Employee's activities shall be restricted in accord with this paragraph. If the Employee ceases to be a PCA Employee, for any reason, the Employee shall not, for a period of one year immediately following the date of separation from PCA, directly or indirectly, engage in the business of tax preparation, tax consultation, bookkeeping, or accounting, or any other duties performed as a tax consultant for PCA with the persons(s) [sic] the Employee consulted or serviced in performance of his/her consultant duties at any time during the one year immediately prior to the date of separation. Person(s) includes individuals, sole proprietorships, partnerships, and corporations.

It is undisputed that this covenant is aimed at preventing Wysocki from providing various accounting services to PCA of Wausau customers whom he had serviced in the year prior to his separation.

¶ 5. In 1986, three years after Wysocki signed the employment agreement, PCA of Wausau merged with PCA of Antigo and PCA of Neillsville. The agreement of merger provided that PCA of Wausau would be the "continuing association and its charter and bylaws shall be those of the continuing association." Pursuant to the merger agreement, PCA of Wausau was renamed PCA of North Central Wisconsin. This merger effectively enlarged the geographical area in which PCA of Wausau had been chartered to operate from almost six counties to twelve counties. Five years after that, in 1991, PCA of North Central Wisconsin entered into an "Agreement and Plan of Merger" with Federal Land Bank of North Central Wisconsin, in which PCA of North Central Wisconsin was named as the "surviving association." The Agreement and Plan of Merger further specified that PCA of North Central Wisconsin's name would then "be changed to Farm Credit Services of North Central Wisconsin, ACA." Throughout this entire period, Wysocki continued working for PCA of Wausau, renamed PCA of North Central Wisconsin, and subsequently renamed FCS, preparing tax returns for various customers.

¶ 6. However, on November 30, 1998, FCS alleges that Wysocki informed his supervisor that he was leaving FCS and that he intended to solicit FCS' customers whose returns he had prepared during 1997. FCS further alleges that Wysocki then solicited FCS customers for whom he had prepared tax returns in 1997. In order to enforce the covenant not to compete, FCS filed suit against Wysocki. The circuit court granted Wysocki's motion for summary judgment and the court of appeals affirmed.

II

[1]

¶ 7. This case is before us on review of summary judgment. It is well established that we review a grant of summary judgment by applying the same methodology as the circuit court. Pinter v. American Family Mut. Ins. Co., 2000 WI 75, ¶ 12, 236 Wis. 2d 137, 613 N.W.2d 110. "Summary judgment will be granted only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Id.

[2]

¶ 8. We first are presented with a question of law regarding the construction of a covenant not to compete in an employment contract. Jones v. Jenkins, 88 Wis. 2d 712, 722, 277 N.W.2d 815 (1979). We review this question of law de novo. Id. We begin our review by determining whether the covenant not to compete provision is per se invalid.

[3, 4]

¶ 9. In Wisconsin, covenants not to compete are regarded with suspicion by the courts because the law seeks to "encourage[] the mobility of workers." Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202, 214, 267 N.W.2d 242 (1978). Indeed, because free movement and personal liberty of employees are preeminent features of employment relations in this state, we have remarked that "so long as a departing employee takes with him no more than his experience and intellectual development that has ensued while being trained by another, and no trade secrets or processes are wrongfully appropriated, the law affords no recourse." Id. Consistent with encouraging the free movement of employees, we have applied the following canons of construction to covenants not to compete: (1) such covenants are prima facie suspect; (2) they must withstand close scrutiny to pass legal muster as being reasonable; (3) they will not be construed to extend beyond their proper import or further than the language of the contract absolutely requires; and (4) they are to be construed in favor of the employee. Streiff v. American Family Mut. Ins. Co., 118 Wis. 2d 602, 611, 348 N.W.2d 505 (1984).

[5]

¶ 10. These canons are grounded in Wis. Stat. § 103.465 (1997-98),¹ which sets forth the law on covenants not to compete in our state:

A covenant by an assistant, servant or agent not to compete with his employer or principal during the term of the employment or agency, or thereafter, 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 such restrictive covenant imposing an unreasonable restraint is illegal, void and unenforceable even as to so much of the covenant or performance as would be a reasonable restraint.

As we recently observed, this statute "evidences a strong public policy against the enforcement of trade restraints which are determined to be unreasonable upon all employees." Tatge v. Chambers & Owen, Inc., 219 Wis. 2d 99, 114-15, 579 N.W.2d 217 (1998).

¶ 11. But we cannot allow the underlying policy of Wis. Stat. § 103.465 and our rules of construction to overwhelm the focus of our analysis in what are, at their core, contract cases. In these...