Runzheimer Int'l, Ltd. v. Friedlen

• Decision Date: 30 April 2015
• Docket Number: No. 2013AP1392.,2013AP1392.
• Citation: 862 N.W.2d 879,362 Wis.2d 100
• Parties: RUNZHEIMER INTERNATIONAL, LTD., Plaintiff–Appellant, v. David FRIEDLEN and Corporate Reimbursement Services, Inc., Defendants–Respondents.
• Court: Wisconsin Supreme Court

362 Wis.2d 100

862 N.W.2d 879

RUNZHEIMER INTERNATIONAL, LTD., Plaintiff–Appellant

v.David FRIEDLEN and Corporate Reimbursement Services, Inc., Defendants–Respondents.

No. 2013AP1392.

Supreme Court of Wisconsin.

Argued Oct. 1, 2014.

Decided April 30, 2015.

For the plaintiff-appellant, there were briefs by Michael B. Apfeld, Michael D. Huitink, Erin M. Cook, and Godfrey & Kahn, S.C., Milwaukee. Oral argument by Michael B. Apfeld.

For the defendants-respondents (in the court of appeals), there was a brief filed Daniel D. Barker, Tony H. McGrath, and Jeffrey M. Rosin, and Constangy, Brooks and Smith LLP, Madison. Oral argument by Jeffrey M. Rosin.

An amicus curiae brief was filed by James A. Buchen and Andrew C. Cook on behalf of Wisconsin Manufacturers and Commerce and the Wisconsin Civil Justice Council, Inc.

ON CERTIFICATION FROM THE COURT OF APPEALS

DAVID T. PROSSER, J.

¶ 1 This case is before the court on certification by the court of appeals pursuant to Wis. Stat. § (Rule) 809.61 (2011–12).¹ It requires us to examine the enforceability of a restrictive covenant signed by an existing at-will employee.

¶ 2 David Friedlen (Friedlen) had worked for Runzheimer International, Ltd. (Runzheimer) for more than fifteen years when Runzheimer required all of its employees, including Friedlen, to sign restrictive covenants. Runzheimer gave Friedlen two weeks to review the covenant, after which Friedlen was required to sign it or be fired. Friedlen chose to sign the covenant and continued to work for Runzheimer for more than two years before being terminated in 2011. Friedlen then sought employment at Corporate Reimbursement Services (CRS), one of Runzheimer's competitors.

¶ 3 Runzheimer sued both Friedlen and CRS, alleging that Friedlen's employment at CRS constituted a breach of the restrictive covenant. Friedlen and CRS moved for summary judgment on Runzheimer's claims on grounds that the covenant was unenforceable because it lacked consideration. The Milwaukee County Circuit Court² initially denied the motion. The parties then conducted additional discovery, Runzheimer filed an amended complaint, and Friedlen and CRS again moved for summary judgment. This time the court granted summary judgment against three of Runzheimer's four claims. The court ruled that Runzheimer's promise not to fire Friedlen immediately if he signed the restrictive covenant was an illusory promise and did not constitute consideration to support the agreement because Runzheimer retained “the unfettered right to discharge Friedlen at any time, including seconds after Friedlen signed the Agreement.”

¶ 4 Runzheimer appealed, and the Wisconsin Court of Appeals certified the case to this court. In its certification, the court explained that Wisconsin law fails to adequately address whether an employer's forbearance of its right to terminate an existing at-will employee in exchange for the employee agreeing to a restrictive covenant constitutes lawful consideration.³

¶ 5 We hold that an employer's forbearance in exercising its right to terminate an at-will employee constitutes lawful consideration for signing a restrictive covenant. Although, theoretically, an employer could terminate an employee's employment shortly after having the employee sign a restrictive covenant, the employee would then be protected by other contract formation principles such as fraudulent inducement or good faith and fair dealing, so that the restrictive covenant could not be enforced.

¶ 6 In this case, the circuit court made no determination as to the reasonableness of the covenant's terms. Because the record and arguments before us are undeveloped on the issue of reasonableness, we decline to address it. Accordingly, we reverse the decision of the circuit court and remand the cause to that court for further proceedings consistent with this opinion.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

¶ 7 Friedlen was an at-will employee at Runzheimer, a Wisconsin corporation that provides “a range of employee mobility services relating to business vehicles, relocation, travel management, corporate aircraft, and virtual office programs.” Runzheimer hired Friedlen in 1993 as a Business Development Consultant. Friedlen worked primarily in this role for Runzheimer, except from 2001 to 2006 when he worked in different capacities. Friedlen participated in Runzheimer's Incentive Plan each year, irrespective of his position, starting with the year he was hired. Runzheimer's Incentive Plan consisted of bonuses based on a percentage of sales in the employee's territory. Runzheimer reviewed the Plan annually and adjusted it for sales targets.

¶ 8 In 2009 Runzheimer required all employees to sign a restrictive covenant. Runzheimer's Director of Business Development, Michael W. Bassi, permitted Friedlen to review the restrictive covenant for two weeks but told him that if he did not sign the agreement by the end of that time, his employment would be terminated. Friedlen's participation in Runzheimer's Incentive Program also was contingent on his signing the restrictive covenant.

¶ 9 The restrictive covenant included the following terms:

1. Confidentiality Obligations. ... After the end, for whatever reason, of Employee's [Friedlen's] employment with the Company [Runzheimer], Employee will not directly or indirectly use or disclose any Trade Secret of the Company. For a period of 24 months following the end, for whatever reason, of Employee's employment with the Company, Employee will not directly or indirectly use or disclose any Confidential Information of the Company. Nothing in this Agreement shall prevent Employee, after the end of employment with the Company, from using general skills and knowledge gained while employed by the Company.

....

4. Post–Employment Non–Solicitation of Restricted Customers. For 24 months following the end, for whatever reason, of Employee's employment with the Company, Employee agrees not to directly or indirectly sell or attempt to sell to any Restricted Customers any goods, products or services of the type or substantially similar to the type Employee sold, marketed, produced or supported on behalf of the Company during the 12 months prior to the end of the Employee's employment with the Company.

5. Post–Employment Restricted Services Obligation. For 24 months following the end, for whatever reason, of Employee's employment with the Company, Employee agrees not to directly or indirectly provide to any Competitor Restricted Services or advice or counsel concerning the provision of Restricted Services in the geographic area in which, during the 12 months prior to the end of the Employee's employment with the Company, Employee provided services or assisted any Company employee or agent in the provision of services to or on behalf of the Company.

¶ 10 Friedlen signed the restrictive covenant on June 15, 2009. He received more than $20,000 in 2009 from Runzheimer's Incentive Plan in addition to his regular compensation. Runzheimer employed Friedlen for 29 months after he signed the restrictive covenant. On November 16, 2011, however, Runzheimer terminated Friedlen's employment.⁴

¶ 11 Following his termination, Friedlen reached out to CRS. CRS is a competitor of Runzheimer, as both corporations administer services for employers to utilize Internal Revenue Service guidelines to determine how employers can reimburse employees without tax consequences for the business use of the employees' personal vehicles. Friedlen retained independent counsel to review the restrictive covenant and determine its enforceability. Friedlen's independent counsel opined that the restrictive covenant was not enforceable. CRS then offered Friedlen a position, which he accepted on December 14, 2011. He began work for CRS on January 2, 2012.

¶ 12 On January 18, 2012, Runzheimer sent Friedlen a letter demanding his compliance with the restrictive covenant. Friedlen ignored Runzheimer's demand because he believed the restrictive covenant was unenforceable. Consequently, Runzheimer filed a complaint against Friedlen and CRS on January 20, 2012, alleging: (1) Friedlen breached the restrictive covenant, (2) Friedlen misappropriated Runzheimer's trade secrets, and (3) CRS tortiously interfered with the restrictive covenant.

¶ 13 On February 16, Friedlen and CRS filed a motion seeking dismissal (or, alternatively, summary judgment) of Runzheimer's claims. They argued that the restrictive covenant was unenforceable because it lacked consideration. The Milwaukee County Circuit Court, William W. Brash, III, Judge, denied the motion, with some hesitation, because of material questions of fact about consideration.

¶ 14 On November 5, 2012, after conducting additional discovery, Runzheimer filed an amended complaint that included an additional claim of common law misappropriation of confidential information against both Friedlen and CRS and a claim of tortious interference with prospective business relationship, also against both defendants. On November 15, Friedlen and CRS again moved for summary judgment on all claims.

¶ 15 On May 14, 2013, the circuit court granted the defendants' motion on all claims except the misappropriation claim. In explaining its ruling on Runzheimer's breach of contract claim, the court stated, “Runzheimer made an illusory promise of continued employment to Friedlen. Such a promise cannot constitute consideration for the Agreement. The fact that Friedlen continued his employment with Runzheimer for years after the Agreement does not change the analysis.”

¶ 16 The court determined that Wisconsin law does not adequately address whether continued employment of an existing at-will employee is lawful consideration supporting enforcement of a restrictive covenant. Nevertheless, the court stated that its ruling was consistent with the Wisconsin Court of Appeals' analysis of employment-at-will situations, as well as this court's opinions on consideration in restrictive covenants.

¶ 17 All parties stipulated to...