HEYDE COMPANIES v. Dove Healthcare

• Decision Date: 27 December 2002
• Docket Number: No. 01-0863-FT.,01-0863-FT.
• Citation: 654 N.W.2d 830,2002 WI 131,258 Wis.2d 28
• Parties: HEYDE COMPANIES, INC., d/b/a Greenbriar Rehabilitation, Plaintiff-Respondent-Petitioner, v. DOVE HEALTHCARE, LLC, d/b/a Dove Healthcare at Eau Claire, a Wisconsin Limited Liability Company, Defendant-Appellant.
• Court: Wisconsin Supreme Court

258 Wis.2d 28

2002 WI 131

654 N.W.2d 830

HEYDE COMPANIES, INC., d/b/a Greenbriar Rehabilitation, Plaintiff-Respondent-Petitioner, v. DOVE HEALTHCARE, LLC, d/b/a Dove Healthcare at Eau Claire, a Wisconsin Limited Liability Company, Defendant-Appellant.

No. 01-0863-FT.

Supreme Court of Wisconsin.

Oral argument September 10, 2002.

Decided December 27, 2002.

For the plaintiff-respondent-petitioner, there were briefs by John F. Maloney, Robert K. Bultman and McNally, Maloney & Peterson, S.C., Milwaukee and oral argument by Robert K. Bultman.

For the defendant-appellant, there was a brief by Carol S. Dittmar, Teresa E. O'Halloran and Garvey, Anderson, Johnson, Geraci & Mirr, S.C., Eau Claire and oral argument by Carol S. Dittmar.

¶ 1. WILLIAM A. BABLITCH, J.

Heyde Companies, Inc. petitions this court to review a decision of the court of appeals,¹ which reversed the judgment of the circuit court for Eau Claire County, Eric J. Wahl, Judge. The court of appeals held that an employee's individual right and freedom to contract may not be restricted by a contract between two employers unless the employee is aware of and consents to such a restriction. We agree. A no-hire provision agreed to by employers that restricts the employment opportunities of employees without their knowledge and consent constitutes an unreasonable restraint of trade, in violation of Wis. Stat. § 103.465 (restrictive covenants) and the public policy of the state. Accordingly, we hold that the no-hire provision contained in the agreement between Greenbriar and Dove is unenforceable. ¶ 2. Dove Healthcare, LLC (Dove) is a health care provider that operates nursing homes. Heyde Companies, Inc. (Heyde) owns Greenbriar Rehabilitation (Greenbriar), which furnishes physical therapists to nursing home facilities. In June 1997, Dove and Greenbriar entered into a Therapy Services Agreement (Agreement), whereby Greenbriar was to provide physical rehabilitation services and place physical therapists at Dove's Eau Claire facility. Although the physical therapists worked at Dove's facility, they remained at-will employees of Greenbriar.

¶ 3. The Agreement between Dove and Greenbriar contained a "no-hire" provision, which stated in relevant part:

[Dove] acknowledges and agrees that it will not, directly or indirectly, solicit, engage, permit to be engaged or hire any Greenbriar therapists or therapist assistants to provide services for [Dove] independently, as an employee of [Dove] or as an employee of a services provider other than Greenbriar or otherwise during the term of this Agreement. . . . and for a period of one (1) year thereafter without the prior written consent of Greenbriar. If, after prior written consent by Greenbriar, any Greenbriar therapists or therapist assistants are hired or utilized by [Dove], [Dove] shall pay Greenbriar a fee of fifty percent (50%) of the subject Greenbriar employee's annual salary.

¶ 4. On October 26, 1999, Dove terminated its Agreement with Greenbriar, effective December 31, 1999. Shortly after terminating the Agreement, Dove hired one current and three former Greenbriar employees. Dove did not seek Greenbriar's written consent, nor did it pay 50% of the employees' salaries in accordance with the no-hire provision. ¶ 5. The employees hired by Dove testified in their affidavits that they did not know about the no-hire provision in the Agreement between Greenbriar and Dove that placed restrictions on their ability to be employed by Dove. Some of the employees hired by Dove testified that they inquired whether they would be bound by a non-compete agreement and were told by Greenbriar that they would not be subject to such restrictions.

¶ 6. In 1999, Greenbriar had contracts with approximately 35 nursing home facilities, including Dove, and employed approximately 33 therapists out of the 273 therapists who worked in the Eau Claire/Chippewa Falls area. Greenbriar primarily contracted with facilities located in the Eau Claire/Chippewa Falls area, although it also had contracts with a few facilities in the eastern part of the state.

¶ 7. Greenbriar filed suit against Dove on March 10, 2000, alleging that Dove breached the no-hire provision in the Agreement and sought payment of the 50% contractual fee for the Greenbriar employees who were hired by Dove. Dove moved for summary judgment, claiming that the no-hire provision was unenforceable and an unlawful restraint of trade. The circuit court denied Dove's motion for summary judgment. Greenbriar and Dove stipulated to findings of fact on liability and presented evidence on the issue of damages. The circuit court entered a judgment in favor of Greenbriar and awarded Greenbriar liquidated damages in the amount of $62,124.40.

¶ 8. Dove appealed the circuit court's decision. On October 23, 2001, the court of appeals reversed the judgment of the circuit court and held that the no-hire provision was an unreasonable restraint of free trade because the employees had no knowledge of the provision and did not sign any covenant not to compete. Greenbriar petitioned this court for review.

[1, 2]

¶ 9. At issue is whether a no-hire provision contained in a contract between employers, without the knowledge and consent of the affected employees, is unenforceable as an unreasonable restraint of trade. Determining whether no-hire provisions are enforceable is a question of law. This court reviews questions of law de novo, benefiting from the analyses of the circuit court and court of appeals. In re Corey J.G., 215 Wis. 2d 395, 405, 572 N.W.2d 845 (1998).

[3, 4]

¶ 10. In general, parties are free to contract as they see fit, provided that the contract does not impose obligations that are contrary to public policy. Journal/Sentinel, Inc. v. Pleva, 155 Wis. 2d 704, 710-11, 456 N.W.2d 359 (1990). Public policy may be expressed by statute, administrative regulation, or by the court's expression of the policy of the common law. N. States Power Co. v. Nat'l Gas Co., 2000 WI App 38, 232 Wis. 2d 541, 545-46, 606 N.W.2d 613 (Ct. App. 1999) (citing Pedrick v. First Nat'l Bank, 267 Wis. 436, 438-39, 66 N.W.2d 154 (1954); M&I First Nat'l Bank v. Episcopal Homes, 195 Wis. 2d 485, 507, 536 N.W.2d 175 (Ct. App. 1995); Hawkins Realty Co. v. Hawkins State Bank, 205 Wis. 406, 417, 236 N.W. 657 (1931)). In analyzing the enforceability of a no-hire provision, we review Wis. Stat. § 103.465(1999-2000),² which deals with restrictive covenants in employment contracts.

I

¶ 11. Section 103.465 was enacted in response to Fullerton Lumber Co. v. Torborg, 270 Wis. 133, 70 N.W.2d 585 (1955), where the court enforced an invalid covenant not to compete insofar as it was reasonable. Id. at 147. The court in Fullerton Lumber held that the 10-year period prescribed under the restraint in question was unreasonable, but that a 3-year period was reasonable; accordingly, the court upheld the covenant for a 3-year period. Id. The legislature disagreed with this analysis and enacted § 103.465 in order to invalidate overly broad covenants in their entirety, and not allow courts to give effect to invalid covenants even to the extent that they are reasonable. Streiff v. Am. Family Mut. Ins. Co., 118 Wis. 2d 602, 608, 348 N.W.2d 505 (1984). Under § 103.465, "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."

¶ 12. Greenbriar argues that Wis. Stat. § 103.465 was enacted to protect employees, who often have unequal bargaining power, from unreasonable covenants not to compete with their employers. Greenbriar asserts that, on its face, § 103.465 only applies to restrictive covenants between employers and their employees, and not agreements between employers.

¶ 13. Wisconsin Stat. § 103.465 is broadly entitled "Restrictive covenants in employment contracts," although it only refers to covenants between employers and employees. While a covenant not to compete is typically made between an employer and its employees, it is possible, as illustrated in this case, that a restrictive covenant may be made between employers that acts as a covenant not to compete on the employees. Greenbriar argues that § 103.465 does not apply in this case because the no-hire provision was agreed to by Greenbriar and Dove, not Greenbriar and its employees. However, the explicit purpose of § 103.465, as plainly stated in the statute, is to invalidate covenants that impose unreasonable restraints on employees. This court has recognized that § 103.465 essentially deals with restraint of trade and has held that the statute applies regardless of whether a restriction is labeled a "non-disclosure" provision or a "covenant not to compete." Tatge v. Chambers & Owen, Inc., 219 Wis. 2d 99, 111-12, 579 N.W.2d 217 (1998); see also Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202, 218-20, 267 N.W.2d 242 (1978)

. In Tatge, this court reasoned that "it would be an exercise in semantics to overlook Wis. Stat. § 103.465 merely because paragraph 1 of the agreement is not labeled a `covenant not to compete.'" Tatge, 219 Wis. 2d at 112.

¶ 14. Similarly, the fact that Greenbriar attempts to restrict its employees through a no-hire provision with Dove instead of a restrictive covenant with its employees does not change the underlying analysis. The effect of the no-hire provision is to restrict the employment of Greenbriar's employees; it is inconsequential whether the restriction is termed a "no-hire" provision between Dove and Greenbriar or a "covenant not to compete" between Greenbriar and its employees. Greenbriar is not allowed to accomplish by indirection that which it cannot accomplish directly. For example, in holding that a state statute violated the 13th Amendment of the U.S. Constitution, the U.S. Supreme Court reasoned that "What the state may not to directly it may not do indirectly. . . . [An]...