H & R Block Eastern Ent. v. Swenson

• Decision Date: 20 December 2007
• Docket Number: No. 2006AP1210.,2006AP1210.
• Citation: 745 N.W.2d 421,2008 WI App 3
• Parties: H & R BLOCK EASTERN ENTERPRISES, INC., Plaintiff-Appellant v. Mary SWENSON, Francine J. Sherbert, Tracy A. Hodson, Sally K. Stelloh, Lynette M. Guentz and. Gerald W. Niedfeldt, Defendants-Respondents.
• Court: Wisconsin Court of Appeals

745 N.W.2d 421

2008 WI App 3

H & R BLOCK EASTERN ENTERPRISES, INC., Plaintiff-Appellant^† v. Mary SWENSON, Francine J. Sherbert, Tracy A. Hodson, Sally K. Stelloh, Lynette M. Guentz and. Gerald W. Niedfeldt, Defendants-Respondents.

No. 2006AP1210.

Court of Appeals of Wisconsin.

Submitted, on Briefs November 7, 2006.

Opinion Filed December 20, 2007.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Sharon Mollman-Elliott and Elizabeth Erickson Pevehouse of Foley & Lardner LLP, Madison.

On behalf of the defendants-respondents, the cause was submitted on the brief of Thomas L. Horvath of Hale, of Skemp, Hanson, Skemp & Sleik, La Crosse.

Before HIGGINBOTHAM, P.J., DYKMAN and VERGERONT, JJ.

¶ VERGERONT, J.

H & R Block Eastern Enterprises, Inc. appeals the circuit court's order on summary judgment dismissing its claims against former employees for breach of noncompetition and nonsolicitation clauses in their employment contracts. We conclude, based on the undisputed facts, that the provision extending the time period in each of the clauses "by any period(s) of violations" is unreasonable and renders both clauses entirely void under WIS. STAT. § 103.465 (2005-06).¹ The circuit court therefore properly dismissed the breach of contract claim against all the former employees and the related tortious-interference-with-contract claims against two of them.

¶ 2 H & R Block also contends the circuit court erred in denying its motion for summary judgment on the former employees' counterclaim alleging a violation of privacy under WIS. STAT. § 995.50.² H & R Block asserts that the statute requires that it intentionally use their names for business purposes without their written consent; according to H & R Block, its use of their names was inadvertent and therefore the requisite intent is lacking. We conclude that, even if H & R Block's construction of the statute is correct—an issue we do not decide—the court correctly denied the motion because there were reasonable conflicting inferences regarding H & R Block's intent.

¶ 3 Accordingly, we affirm the order dismissing H & R Block's claims, the order denying summary judgment on the former employees' counterclaim, and the judgment entered on the counterclaim.

BACKGROUND

¶ 4 Mary Swenson, Francine Sherbert, Tracy Hodson, Sally Stelloh, Lynette Guentz, and Gerald Niedfeldt were employed by H & R Block as tax preparers in La Crosse, Wisconsin. (We will refer to them collectively as "the former employees.") Their employment contracts each contained the following clauses:

11. Noncompetition Covenant. Associate covenants that for two (2) years following the voluntary or involuntary termination of Associate's employment (such period to be extended by any period(s) of violation), Associate shall not, directly or indirectly, provide any of the following services to any of the Company's Clients:³ (1) prepare tax returns, (2) file tax returns electronically, or (3) provide bookkeeping or any other alternative or additional service that the Company provides within the Associate's district of employment.

12. Nonsolicitation Covenant. Associate covenants that for two (2) years following the voluntary or involuntary termination of Associate's employment (such period to be extended by any period(s) of violation), Associate shall not directly or indirectly solicit or divert the Company's Clients or otherwise interfere with the Company's continuing relationships with its clients. Company Clients are those defined in Section 11.

(Footnote added.)

¶ 5 In 2004, the former employees had each been working for H & R Block for periods ranging from ten to more than twenty-five years. The employment of Hodson, Niedfeldt, and Stelloh with H & R Block ended in April 2004 and the employment of the other three ended in November 2004. Swenson and Sherbert began a new business in December 2004, known as "King Street Tax & Bookkeeping,"⁴ and hired the other four employees.

¶ 6 H & R Block filed this action in late December 2004. The amended complaint alleges that all the former employees breached the restrictive clauses in their contracts and Swenson and Sherbert tortiously interfered with those clauses in the contracts of the other four employees. The amended complaint seeks injunctive relief and damages. The former employees filed a counterclaim alleging that H & R Block continued to use their names for trade purposes without their permission in violation of their right to privacy under WIS. STAT. § 995.50(2)(b).⁵

¶ 7 After the circuit court denied H & R Block's motion for a temporary restraining order, H & R Block moved for summary judgment on its claims and on the counterclaim. The former employees moved for summary judgment on H & R Block's claims, contending that the restrictive clauses were overbroad on a number of grounds and therefore unenforceable under WIS. STAT. § 103.465. The invalidity of these clauses, they contended, required dismissal of both the breach of contract and the tortious interference claims. As to their counterclaim for invasion of privacy, the former employees contended there were disputed issues of fact that precluded summary judgment.

¶ 8 The circuit court granted summary judgment in favor of the former employees on H & R Block's claims and dismissed those claims. The court concluded that the restrictive clauses were invalid, primarily because of the duration of the restraint. The court stated that a two-year limitation was more than necessary to protect H & R Block's interests; with the extension permitted in addition to the two years, the duration restriction was plainly invalid. The court also questioned the inclusion of bookkeeping in the activities restrained and the breadth of the territory for purposes of defining "company clients." See footnote 3.

¶ 9 The circuit court did not grant H & R Block's motion for summary judgment on the invasion of privacy counterclaim, and that issue was tried to the court. The court determined H & R Block had invaded the employees' right to privacy under WIS. STAT. § 995.50(2)(b) by using their names without their permission to solicit business and determined their compensatory damages to be $1,001.10.

DISCUSSION

¶ 10 On appeal, H & R Block contends it is entitled to summary judgment on its claims, which concern the restrictive clauses in the employment contracts, and on the invasion of privacy counterclaim.

¶ 11 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 Wis.2d 137, 613 N.W.2d 110. A party is entitled to summary judgment when there are no disputed issues of material fact and that party is entitled to judgment as a matter of law. WIS. STAT. § 802.08(2). In deciding whether there are factual disputes, the circuit court and the reviewing court consider whether more than one reasonable inference may be drawn from undisputed facts; if so, the competing reasonable inferences may constitute genuine issues of material fact. Hennekens v. Hoerl, 160 Wis.2d 144, 162, 465 N.W.2d 812 (1991). We draw all reasonable inferences from the evidence in favor of the nonmoving party. Grams v. Boss, 97 Wis.2d 332, 339, 294 N.W.2d 473 (1980). Whether an inference is reasonable and whether more than one reasonable inference may be drawn are questions of law. Hennekens, 160 Wis.2d at 162, 465 N.W.2d 812.

I. H & R Block's Claims—Validity of the Restrictive Clauses

¶ 12 The issue of the validity of the restrictive clauses in the employees' contracts involves the construction and application of WIS. STAT. § 103.465 in light of existing case law. 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.

¶ 13 This statute expresses a strong public policy against the enforcement of unreasonable trade restraints on employees. Tatge v. Chambers & Owen, Inc., 219 Wis.2d 99, 114-15, 579 N.W.2d 217 (1998). In order to be enforceable, a contract provision governed by this statute must: (1) be necessary to protect the employer; (2) provide a reasonable time limit; (3) provide a reasonable territorial limit; (4) not be harsh or oppressive to the employee; and (5) not be contrary to public policy. Heyde. Companies, Inc. v. Dove Healthcare, LLC, 2002 WI 131, ¶ 16, 258 Wis.2d 28, 654 N.W.2d 830 (citations omitted). Because "a restraint on trade[, where] tolerated ... is permitted only to the extent absolutely necessary to afford reasonable protection[,]" the time and territorial limitations must be no greater than necessary to afford that protection. Gary Van Zeeland Talent, Inc., v. Sandas, 84 Wis.2d 202, 218, 267 N.W.2d 242.

¶ 14 In examining restrictive covenants, we apply the following canons of construction: (1) they 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, Heyde, 258 Wis.2d 28, ¶ 16, 654 N.W.2d 830.

¶ 15 When an employer's customers or clients regularly deal with a particular employee, the employer's interest in protecting its stock of customers when that employee leaves may be a legitimate interest that justifies a reasonable restraint on the employee. Chuck Wagon Catering, Inc. v....