Lakeside Oil Co. v. Slutsky
| Decision Date | 06 October 1959 |
| Citation | 98 N.W.2d 415,8 Wis.2d 157 |
| Parties | LAKESIDE OIL CO., Inc., Respondent, v. Harold H. SLUTSKY, Appellant. |
| Court | Wisconsin Supreme Court |
Raskin, Zubrensky & Padden, Milwaukee, for appellant.
Charles L. Goldberg, Francis X. Krembs, Milwaukee, for respondent.
Slutsky contends the contract constitutes a general restraint of trade and is therefore illegal under sec. 133.01, Stats. In Pulp Wood Company v. Green Bay Paper & Fiber Company, 1914, 157 Wis. 604, 147 N.W. 1058, this court discussed the 'rule of reason' applicable to cases within the general purview of this section and pointed out that the validity of a particular contract depended upon the facts and the extent to which competition was restricted or trade obstructed. The case of State v. Lewis & Leidersdorf, 1930, 201 Wis. 543, 230 N.W. 692, cited by the defendant, applies to an entirely different set of facts and is not in point here. This contract on its face is not illegal under sec. 133.01, Stats.
Contracts not to compete after a term of employment being in the general class of contracts in restraint of trade may be illegal if the restraint is unreasonable. Restatement of Contracts, secs. 514 and 515. But a contract by an employee not to compete with his employer after a term of employment within such territory and during such time as may be reasonably necessary for the protection of the employer without imposing undue hardship on the employee is a reasonable restraint. Restatement of Contracts, sec. 516; 36 Amer. Jur., Monopolies, sec. 78, p. 554; Eureka Laundry Company v. Long, 1911, 146 Wis. 205, 131 N.W. 412, 35 L.R.A.N.S., 119; 28 Amer.Jur., Injunctions, sec. 105, p. 604.
In 1957 the legislature enacted sec. 103.465, Stats., which provided that a covenant by an employee not to compete with his employer after the term of his employment within a specified territory and during a specified time is lawful and enforceable if the restrictions imposed are reasonably necessary for the protection of the employer. This section also provides that such restrictive covenant imposing an unreasonable restraint is void and unenforceable even as to so much of the covenant or performance as would be a reasonable restraint. Prior to the passage of this section this court held in Fuilerton Lumber Company v. Torborg, 1954, 270 Wis. 133, 70 N.W.2d 585, that such a contract imposing an unreasonable restraint would be enforced to the extent that such restraint was reasonable. The rationale was that when the terms of a restrictive covenant were not otherwise invalid only the excess of territory or time was contrary to public policy and unenforceable. The rule respecting the unenforceability of unreasonable restraints not to compete laid down in the Torborg case has been changed by sec. 103.465, Stats., 1957.
However, this section does not change the prior law of what constitute unreasonable restraints because the section only requires the restrictions as to time and place to be reasonably necessary for the protection of the employer. If such a contract is void for other reasons, such as public policy, or sec. 133.01(1), Stats., or creates an undue hardship upon the employee a court of equity will not enforce it.
Contracts not to compete after a term of employment have been the subject matter of such litigation in the United States. There is a multitude of cases collected in the various text books and especially enlightening annotations are to be found in 9 A.L.R. 1456, 20 A.L.R. 861, 29 A.L.R. 1331, 52 A.L.R. 1362 and 41 A.L.R.2d 15. However phrased the rule requires that a restrictive covenant not to compete after a term of employment should be reasonably necessary for the protection of the legitimate interests of the employer and at the same time should not be oppressive and harsh on the employee or injurious to the interests of the general public. This is the rule in Wisconsin. Eureka Laundry Company v. Long, supra; Milwaukee Linen Supply Company v. Ring, 1933, 210 Wis. 467, 246 N.W. 567.
The first question to be determined under the rule is whether there is a need for any restriction of the activities of the defendant for the protection of the plaintiff. An employer is not entitled to be protected against legitimate and ordinary competition of the type that a stranger could give. There must be some additional special facts and circumstances which render the restrictive covenant reasonably necessary for the protection of the employer's business. Many cases have found such special facts in the nature of the relationship between the employee and the customers of the employer. This is known as the customer contract theory. See Annotation 41 A.L.R.2d 15. If under this theory the most important single asset of most businesses is their stock of customers, the protection of this asset is the legitimate interest of the employer.
Here Slutsky was hired as a salesman to develop customers for the plaintiff. The mere opportunity of Slutsky to become acquainted with the customers would not determine a reasonable necessity, but Slutsky's personal relationship with the customers, whom he obtained by his own personality and salesmanship and whom, in most cases, the plaintiff did not know personally, amounted to such control or influence that Slutsky would be able to take such customers away from the plaintiff. Slutsky not only developed the customers but he also serviced them. The plaintiff's business is highly competitive; there is very little or no variation in price or difference in the products sold. Sales made by Slutsky were due not to price or the fact they involved the plaintiff's product but to the customers' confidence in Slutsky or his personal relationship with the customers. To his customers Slutsky was identified with the plaintiff's business. This was due in part because he was the main contact with the customers; the sales took place primarily at the customer's home or place of business. He was no mere order-taker but a salesman with some authority and standing. Under such circumstances the plaintiff has a great need for protection from the competition of his former employee. Some or most of these elements were recognized in Eureka Laundry Company v. Long, supra and Fullerton Lumber Company v. Torborg, supra.
The defendant argues he did not become the possessor of trade secrets or acquire any special knowledge so as to be in a position to damage the plaintiff. This argument is generally advanced in cases involving an employee's breach of his affirmative promise to work for the employer and no covenant not to compete exists. In such cases the question is the damage caused by the defendant by the breach of his affirmative promise. That is not the case here. If Slutsky had possessed technical trade secrets, that fact would be an additional ground for the necessity of protecting the plaintiff. The defendant, however, does retain the advantage of some special knowledge of the source of supply, methods of distribution and of the names and special needs of the plaintiff's customers. He had access to the records of the plaintiff and received on-the-job training. Slutsky knew nothing about the petroleum products industry when he was hired by the plaintiff. Undoubtedly he believed that he had acquired enough skill and experience in the plaintiff's type of business during his 15 months of employment to enable him to start a competing business for himself. This is not a suit to enjoin Slutsky from using ordinary business methods or generally obtainable information or his talents as a salesman.
Slutsky was paid to develop customers for the plaintiff. He should not now be allowed to take such customers away from the plaintiff without giving his former employer a reasonable chance to keep them. This raises the question of whether the restriction of two years is reasonable. Reasonableness in this respect depends upon the period of time required to obliterate in the minds of the plaintiff's customers the identification formed during the period...
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