Rollins Burdick Hunter of Wisconsin, Inc. v. Hamilton

Decision Date29 April 1981
Docket NumberNo. 79-1473,79-1473
PartiesROLLINS BURDICK HUNTER OF WISCONSIN, INC., Plaintiff-Appellant-Petitioner, v. Kirk W. HAMILTON and David B. Hays, Defendants-Respondents.
CourtWisconsin Supreme Court

Stephen T. Jacobs (argued), William F. Flynn and Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S. C., Milwaukee, on brief, for plaintiff-appellant-petitioner.

Craig W. Nelson (argued), and Piette, Knoll & Nelson, Milwaukee, on brief for defendants-respondents.

CALLOW, Justice.

On this review we must consider, first, whether a noncompetition agreement which prohibits a former employee from soliciting clients of the former employer for a specified time is unreasonable as a matter of law for failing to contain a territorial limitation expressed in geographic terms; and second, whether such an agreement is unreasonable as a matter of law if it prohibits solicitation of all clients of the former employer as opposed only to those with whom the former employee had contact. The circuit court for Waukesha County, John P. Buckley presiding, granted judgment dismissing the employer's action to enforce the agreement, and the court of appeals affirmed.

The petitioner, Rollins Burdick Hunter of Wisconsin, Inc. (RBH), formerly known as Goetz-Haessler-James, Inc., is an insurance agency with its offices located in Milwaukee, Wisconsin. The respondents, Hamilton and Hays, are former RBH employees. In 1974 Hamilton and Hays executed identical agreements not to compete with Goetz-Haessler-James, Inc., the pertinent part of which provides:

"2. After Termination of Employment. If Employee terminates his employment with Agency for any reason or if Agency terminates his employment for cause, Employee agrees that he will not, directly or indirectly (through partners, agents, employers, employees or any other persons acting for Employee) for a period which is the lesser of (i) two years or (ii) Employee's period of employment from the date of this Agreement until termination, solicit, contact or otherwise do any competitive business with any individual, firm, corporation, partnership, organization or association who was a customer or client of Agency during a period which is the lesser of (i) two years or (ii) Employee's period of employment from the date of this Agreement until termination. (Emphasis added.)

"...

"4. Injunction. Employee, recognizing that irreparable injury will result to Agency and its business in the event of breach of this Agreement by Employee, agrees that in the event of breach of this Agreement in addition to any other remedies and damages available, Agency shall be entitled to an injunction restraining further violation of this Agreement by Employee, his partners, agents, employers, employees and all other persons acting for or with him."

Goetz-Haessler-James, Inc., became Rollins Burdick Hunter of Wisconsin, Inc., in March of 1979; and on June 29, 1979, Hamilton and Hays voluntarily terminated their employment with RBH. On July 27, 1979, prompted by its belief that Hamilton and Hays were soliciting insurance business from RBH clients, RBH commenced an action in circuit court seeking a permanent injunction against Hamilton and Hays prohibiting them from violating the terms of the noncompetition agreement. Shortly thereafter RBH filed a motion for a temporary injunction pendente lite. Hamilton and Hays moved to dismiss the action for failure to state a claim upon which relief can be granted. Affidavits were filed supporting and opposing the motion for a temporary injunction, and a hearing on that motion and the motion to dismiss was held in the circuit court on August 13, 1979.

In a decision dated August 28, 1979, the circuit court observed that RBH had a total of about six thousand clients and that Hamilton and Hays, as RBH employees, had knowledge of or contact with about one hundred seventy-five of those. Relying upon Chuck Wagon Catering, Inc. v. Raduege, 88 Wis.2d 740, 277 N.W.2d 787 (1979), the court concluded that the agreement was unreasonable as to its territorial limitation because its prohibition on the solicitation of RHB customers extended beyond those clients actually serviced by Hamilton and Hays. Further concluding that the agreement was therefore unreasonable as to Hamilton and Hays and thus unenforceable pursuant to sec. 103.465, Stats., 1 the court denied RBH's motion for a temporary injunction and granted Hamilton's and Hays' motion to dismiss. The court of appeals, in a per curiam opinion, affirmed the circuit court, holding that the absence of an express geographic territorial limitation in the agreement was not in itself fatal, but that the territorial limitation even as expressed in terms of RBH clients was unreasonable in this case because it extended to RBH clients with whom Hamilton and Hays had had no contact. The court of appeals treated the circuit court's order as one granting summary judgment and concluded that none of the remaining factual issues would redeem the unreasonableness of the agreements. Hunter of Wisconsin, Inc. v. Hamilton, 97 Wis.2d 758, 295 N.W.2d 834 (Ct.App.1980). We concur with the court of appeals that a geographic territorial limit is not essential to a valid covenant not to compete, but we cannot conclude on the basis of the record before us that the instant agreements are unreasonable as a matter of law, and therefore we reverse and remand for further proceedings.

I.

It appears as though the primary reason both courts below concluded the agreements in this case were unreasonable is that they prohibited Hamilton and Hays from soliciting RBH clients with whom they had had no contact during their employ at RBH. Before we address that issue, we must consider as a preliminary matter the contention of Hamilton and Hays that the agreements are per se invalid because they do not contain a territorial limitation expressed in geographic terms. The court of appeals rejected that argument and so do we.

Professor Blake, in his work on postemployment restraints, states:

"The traditional dimensions of a restraint have been those of duration and geographic area. The 'activity' dimension was not an issue in the earliest cases; a trade was a trade, set apart by separate guilds and the institution of apprenticeship, and there was no ambiguity in a promise not to 'exercise the trade of a baker' or 'enter into competition.' But division of labor and specialization now make it of the utmost importance that a restraint define carefully the activities in which the employee is not to engage. Thus, in modern cases the 'time' dimension remains critical, but the 'activity' restraint is, in many cases, replacing the 'area' restraint."

Blake, Employee Agreements Not To Compete, 73 Harv.L.Rev. 625, 675 (1960). In a proper case the preferability of a restraint expressed in terms of particular customers or particular activities over one expressed in geographic terms is evident. In this case had the agreements been drawn to prevent Hamilton and Hays from engaging in the insurance business in some specified area, as for example in Milwaukee County, the prohibition would necessarily have encompassed not only RBH clients in that area but all potential clients. The limitation expressed in terms of particular clients or customers more closely approximates the area of the employer's vulnerability to unfair competition by a former employee and does not deprive the employee of legitimate competitive opportunities to which he is entitled. See: Wolf & Co. v. Waldron, 51 Ill.App.3d 239, 9 Ill.Dec. 346, 366 N.E.2d 603 (1977); Hebb v. Stump, Harvey and Cook, Inc., 25 Md.App. 478, 334 A.2d 563 (1975); Toch v. Eric Schuster Corporation, 490 S.W.2d 618 (Tex.Civ.App.1972); Inland Rubber Corporation v. Helman, 237 So.2d 291 (Fla.Dist.Ct.App.1970); Group Association Plans, Inc. v. Colquhoun, 292 F.Supp. 564 (D.D.C.1968). This court recognized the appropriateness of this kind of territorial limitation in Chuck Wagon where we said:

"In Wisconsin a covenant is considered reasonable as to territory if, like this covenant, it is limited to the route or customers defendant actually services." 88 Wis.2d at 754 (277 N.W.2d 787).

The respondents argue that an express geographic limitation is required by the terms of sec. 103.465, Stats., and this court's decision in Holsen v. Marshall & Ilsley Bank, 52 Wis.2d 281, 190 N.W.2d 189 (1971). Sec. 103.465 provides that a covenant not to compete "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." Even if this statute is taken to set forth the essential characteristics of an enforceable agreement, we do not see in it any reference to geographic territory, and as we believe a limitation expressed in terms of a particular group of forbidden customers or clients is in the manner of a territorial limitation, the absence of a geographic territorial limitation is not necessarily fatal. Holsen held that a forfeiture provision in a profit-sharing and retirement plan, under which any employee who engaged in a competing business would lose one-half his vested interest in the plan, ran afoul of sec. 103.465 because it contained neither area nor time limitations. The forfeiture clause under consideration in that case did not contain a limitation expressed in terms of specific customers or activities, and thus the case cannot be read to mandate a geographic territorial limitation where, as in this case, the territorial limitation is supplied in other terms. Accordingly, we hold that the territorial limitation of a restrictive covenant need not be expressed in geographic terms as an absolute prerequisite to a valid and enforceable agreement.

We come to the principal issue of the case which is whether the instant agreements are invalid per se because they...

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