Fullerton Lumber Co. v. Torborg

• Citation: 270 Wis. 133,70 N.W.2d 585
• Parties: FULLERTON LUMBER CO., a foreign corporation, Appellant, v. Albert C. TORBORG, Respondent.
• Decision Date: 01 June 1955
• Court: Wisconsin Supreme Court

Page 585

70 N.W.2d 585

270 Wis. 133

FULLERTON LUMBER CO., a foreign corporation, Appellant, v. Albert C. TORBORG, Respondent.

Supreme Court of Wisconsin.

June 1, 1955.

Dougherty, Ryan, Moss & Wickhem, Moss & Wickhem, Janesville, for appellant.

C. C. Mullarkey, Clintonville, Edward J. Hart, Waupaca, for respondent.

MARTIN, Justice.

We will first consider the question whether there is evidence to support the trial court's finding that there was a termination of the employment on June 7, 1947 and a rehiring thereafter under terms different from the employment agreement of April 15, 1946.

The conflict presented by the testimony is as follows: Mr. Butler stated that in a discussion with defendant in June 11th or 12th he pointed out that if the company was to consider his employment terminated he would have to work for five years to again become eligible for the pension and for three continuous months to qualify for insurance benefits; that if his week's absence were considered as a leave of absence rather than a termination, the pension funds and insurance could be left in force. There is no question that after defendant went back to Clintonville on the 15th the pension and insurance remained in effect. Defendant knew this and does not deny it. Mr. Butler further testified that the company would not have hired defendant on any other basis than that of the employment contract since it was the company's established policy to require such contracts of employees who became eligible to participate in the pension plan. At the trial defendant testified that although Butler mentioned the pension trust on the occasion of his rehiring, no agreement was made to treat the time off as a leave of absence. The evidence also shows, however, that on an adverse examination he testified he could not recall anything about the conversation except that he was there.

In its decision the trial court stated that:

'If the plaintiff does prevail the restriction should be effective as of June 7, 1947 for most certainly the employment was then terminated regardless of how any party thereto chose to misstate the fact.'

In our opinion the finding, based only on the negative and vague testimony of the defendant, is against the great weight and clear preponderance of the evidence. At no time from 1947 until defendant quit did he indicate that he did not consider himself employed under the contract and during all that time he knew he was subject to the benefits of the pension plan. His acquiescence therein is contrary to the finding that the employment terminated in 1947.

There is no question that restrictive covenants of the type involved in this contract are lawful and enforceable if they meet the tests of necessity and reasonableness.

As stated in Restatement of the Law, Contracts, sec. 516, p. 995:

'The following bargains do not impose unreasonable restraint of trade unless effecting, or forming part of a plan to effect, a monopoly: * * *.

'(f) A bargain 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 such territory and during such time as may be reasonably necessary for the protection of the employer or principal, without imposing undue hardship on the employee or agent.'

At sec. 515, p. 988, of the same text it is stated:

'A restraint of trade is unreasonable, in the absence of statutory authorization or dominant social or economic justification, if it

'(a) is greater than is required for the protection of the person for whose benefit the restraint is imposed * * *.'

It is established that:

'The burden rests upon the employer to establish both the necessity for, and the reasonableness of, the restrictive covenant he seeks to enforce by enjoining the employee from violating its terms.' Annotation, 52 A.L.R. 1364.

Cases such as Midland Lumber & Coal Co. v. Roessler, 1930, 203 Wis. 129, 233 N.W. 614; Kradwell v. Thiesen, 1907, 131 Wis. 97, 111 N.W. 233; My Laundry Co. v. Schmeling, 1906, 129 Wis. 597, 109 N.W. 540, and Cottington v. Swan, 1906, 128 Wis. 321, 107 N.W. 336, where this court has upheld restrictive covenants, are not very helpful in this instance because they grow out of the sale of a business rather than employment. As pointed out in the Restatement of the Law, Contracts, sec. 515, Comment (b):

'No identical test of reasonableness applies to bargains for the transfer of land or goods or of a business, on the one hand, and to bargains for employment on the other. The elements that must be considered in order to determine reasonableness differ in the two cases, especially where the employment is of a specialized character, and familiarity and skill in it are assets of the employee. Limitations of his use of these assets are less readily supported than limitations of the use of property or in carrying on a business.'

See, also, Annotation 9 A.L.R. 1456, et seq.

Our court has consistently recognized this difference with respect to applying the test of reasonableness, Milwaukee Linen Supply Co. v. Ring, 1933, 210 Wis. 467, 246 N.W. 567, and has allowed a much greater scope of restraint in contracts between vendor and vendee than between employer and employee. As there stated, 210 Wis. at page 473, 246 N.W. at page 569, 'There is 'small scope for the restraint of the right to labor and trade and a correspondingly small freedom of contract.'' In all these cases the facts must be carefully scrutinized to determine whether the employee is restrained beyond the point where he could be reasonably anticipated to injure his employer's business. Where the facts warrant such a conclusion this court has held that the entire covenant must fall.

'* * * if full performance of a promise indivisible in terms, would involve unreasonable restraint, the promise is illegal and is not enforceable even for so much of the performance as would be a reasonable restraint.' Restatement, Contracts, sec. 518, p. 1004.

We agree with the trial court that the ten-year period of restraint imposed by the instant contract is unreasonably long. There is no case cited where this court has upheld a covenant in an employment contract restricting the employee from engaging in competitive activity for so long a time, and the evidence in this case does not establish that a ten-year restraint is necessary for the protection of plaintiff's business.

It cannot be seriously disputed, however, that defendant was plaintiff's key employee in the Clintonville yard. Being a foreign corporation with all its officers and supervisory employees outside of the state, the plaintiff necessarily depended for the growth and maintenance of good will in the Clintonville area upon the efforts and personal assets of the defendant. In the first three years of his employment as manager there he tripled the business of the yard and thereafter (with the exception of 1952 when the entire country experienced a building 'boom') he maintained the sales at a level averaging well over $200,000 per year. He terminated his employment at the end of 1953 and immediately commenced operations in Clintonville in competition with the plaintiff. The sales of plaintiff's yard for 1954, based upon its business for the first five months of that year, were estimated at approximately $60,000, a decline of more than two-thirds of the average annual sales of the previous years (excluding the peak year 1952).

These facts conclusively show not only that the business of plaintiff's Clintonville yard depended largely on the efforts, and customer contacts of the defendant, but that it suffered an irreparable loss when defendant took those efforts and customer contacts, as well as three other employees of plaintiff's yard, into a competitive business immediately after he left its employ.

Defendant states in his brief:

'We concede at this point that plaintiff does have a legitimate interest in its business and good will which it is entitled to preserve by exacting a reasonable restrictive covenant from its manager. The testimony in this case clearly shows that defendant has been able to establish a business at Clintonville which has substantially cut into the business of plaintiff. This, of course, was possible because defendant started his business immediately after he quit plaintiff, while all of his connections with the customers of the plaintiff were still strong. It is obvious that if defendant were removed from the scene for any extended period, and his place were taken by another Fullerton manager, the good will and trade of the plaintiff would be safe in the hands of the new manager.'

There has been no case in this court where the facts presented such a clear need for the kind of protection plaintiff thought it was bargaining for when this contract was made. The facts show that it had every reason to anticipate its business would suffer if defendant, after developing and establishing personal relations with its customers in Clintonville, chose to leave its employ and enter into competition with it in that vicinity.

It is, of course, necessary to consider whether the legality of the covenant is open to objection on the ground of coercion or interference with individual liberty.

'* * * injunctive relief will not be awarded against breach of a covenant the real purpose of which was to prevent the employee from quitting the employers' service.' Annotation 52 A.L.R. 1363.

There is no evidence that such a purpose existed when this contract was drawn and the fact that defendant did in fact terminate the employment to carry on competitive operations shows that the restrictive covenant had no such deterring effect upon him. There is no showing that it had had that effect at any time while he was working for the plaintiff.

The evidence of irreparable damage to the plaintiff is so strong in this case that we have undertaken a thorough reconsideration of the rule that has obtained in Wisconsin--that...