Archive for the ‘Editorials’ Category
A bill that would amend Wisconsin’s current statute governing non-compete agreements has been introduced in the legislature and if passed would preemptively override the Wisconsin Supreme Court decision in Runzheimer Int’l v. Friedlen (2013AP1392), a case which the Wisconsin Civil Justice Council (WCJC) filed an amicus curiae brief in last fall.
Wis. Stat. § 103.465 is Wisconsin’s current statute governing non-compete agreements. Current law allows employers to restrict the ability of employees to compete within a certain geographic area, in a certain professional field, for a limited amount of time after the termination of employment. These restraints are only enforceable if they are reasonably necessary for the protection of the employer. If one portion of the agreement is found unreasonable by the courts, then the entire agreement is unreasonable unless the clauses are separate enough that one can be struck down and others upheld and the non-compete can still work (this is a judicial innovation).
Recent Wisconsin Supreme Court Case
Last October, the state supreme court heard the case Runzheimer Int’l v. Friedlen (2013AP1392) dealing with non-compete agreements last October. In that case Runzheimer Int’l, Ltd. updated its non-compete agreement with its employees. Each at-will employee was informed that in order to continue employment at Runzheimer he or she had to sign a new non-compete agreement. David Friedlen signed the new non-compete agreement in exchange for continued employment and continued access to the Runzheimer incentive plan. Two years later Friedlen’s employment was terminated. He then went to work for a Runzheimer competitor.
Runzheimer argued that by working for a competitor Friedlen violated the non-compete agreement. Friedlen asserted that because he was an at-will employee, and therefore could have been terminated at any time, that the offer of continued employment and continued access to the incentive package is illusory.
The trial court agreed with Friedlen holding that continued employment and continued access to the benefits plan was not sufficient consideration to support a non-compete agreement.
The WCJC’s amicus curiae brief filed in the case argues that if the trial court was not overturned, then it will be harder for employers to protect their proprietary processes and information.
On March 5th Senator Paul Farrow introduced 2015 Senate Bill 69, which if passed, will amend Wis. Stat. § 103.456 in multiple significant ways:
- Including At-will Employment: First SB 69 would include continued at-will employment as valid consideration for a non-compete agreement provided that the employee’s pay and benefits are equal before and after entering the agreement. Continued employment is only valid consideration if it is contingent on the execution of the non-compete agreement (meaning the employer actually terminates the employment of those employees who refuse to sign the agreement). This would preemptively override the state supreme court decision in Runzheimer.
- Defining “Legitimate Business Interests”: The bill defines “legitimate business interests” as: (1) a trade secret, (2) substantial relationships with specific existing or prospective customers, (3) customer, patient, or client goodwill associated with a specific geographic area, (4) unique, extraordinary, or specialized training provided by the business or obtained as a result of employment.
- Time Restriction: The bill creates a rebuttal presumption that a time restriction on being employed in the same field as they previously worked of six months or less on the employee is presumed reasonable while a time restriction of more than two years is presumed unreasonable.
- Revisions by the Court: Changes made by the bill would enable Wisconsin courts to revise a non-compete agreement by amending sections that are considered unreasonable (known as “blue-penciling”) when necessary to protect the employer’s legitimate business interest(s).
- Prohibiting “Individualized Economic Hardship”: The changes also prohibit a court from considering “individualized economic hardship” of the former employee when determining whether the non-compete should be enforced or not. The changes also limit the ability of a court to use statutory interpretation to interpret the scope of the non-compete narrowly or to invalidate the non-compete on public policy rationales.
The Class Action Reform Act (CAFTA) turned ten years old a month ago. Introduced by Senator Chuck Grassley (R-Iowa) in early 2005, it passed overwhelmingly in both houses of Congress, and was signed into law on February 18, 2005. This Act reformed two problem areas associated with class action lawsuits.
First, CAFTA loosened diversity jurisdiction for certain class action lawsuits to reduce forum-shopping by plaintiffs. Federal diversity jurisdiction was expanded to allow out-of-state defendants to remove a class action lawsuit filed in state court to federal court if: (1) at least $5 million aggregate amount-in-controversy, and (2) at least one member of the class is a citizen of a different state than one defendant, or (3) any member of the class is a foreign resident and any defendant is a domestic resident (or vice-versa). Furthermore neither of the following requirements can apply: (1) 2/3 of the plaintiffs are from the state in which the lawsuit was originally filed, or (2) there are less than 100 plaintiffs in the lawsuit. The effect of this innovation alleviated the burden for out-of-state defendants from litigating in “magnet states” where courts apply loose class certification standards which make class action lawsuits easier to initiate and settle.
Second, CAFTA changed the way “coupon settlements” are audited and redeined in plaintiffs’ lawyer fees in conjunction with these settlements. A coupon settlement is when a defendant offers class members coupons or promises for products or services instead of a monetary settlement. The problem with coupon settlements is that their value could not always be gauged by class members or judges, which led to concerns that the settlement may be of no value to class members. CAFTA reformed this process by providing that an independent expert may audit coupon settlements prior to judicial approval of the settlement. The Act also requires greater scrutiny by federal judges of attorney’s fees to determine if they are excessive in a coupon settlement. The judge can reduce excessive fees.
The U.S. Chamber of Commerce’s Institute for Legal Reform recently offered a series of proposals to strengthen CAFTA. They include:
- Tying plaintiffs’ attorney fees to actual class member recovery in all class actions. This will protect plaintiffs against excessive fees.
- Expand federal jurisdiction to include class actions filed in state court that overlap with federal multidistrict proceedings (MDL proceedings). Federal law allows federal cases involving identical questions of fact pending in separate jurisdictions to be transferred to an MDL proceeding in order to coordinate and consolidate pretrial proceedings. Currently plaintiffs’ attorneys circumvent virtually identical MDL proceedings by keeping class actions in state court. The Institute for Legal Reform suggests the creation of a mechanism to allow non-diverse state court class action claims to benefit from MDL proceedings similar to how CAFTA eliminated the need for complete diversity in class actions (See 28 U.S.C. 1332(2)(2)(A)-(C)).
- Change the standard of review that Federal District Courts use to determine if the $5 million minimum amount in controversy has been met when a party seeks removal of a class action lawsuit from state to federal court. Currently there is a circuit spit as to whether the correct standard of review for the amount in controversy requirement is the “legal certainty” standard or the “preponderance of the evidence” standard. The Institute for Legal Reform suggests that Congress make it clear that the “preponderance of the evidence” standard was the correct test under CAFTA.
- Federal Rule of Civil Procedure 23(f) allows a party to appeal an order granting or denying class-action certification within 14 days after the order was entered. In recent years the federal appellate courts have only granted 1/4 of the petitions seeking interlocutory review. The Institute for Legal Reform has found that the federal circuits vary widely on the percentage of petitions they grant interlocutory review. This decline can be devastating to defendants who are often forced to settle after class certification even if the claims against them are meritless. The Institute for Legal Reform recommends that Congress consider establish a uniform standard for Rule 23(f) or make interlocutory review mandatory.
For a more detailed analysis see the Institute for Legal Reform’s informational paper on the subject.
On March 10, 2015, the International Association of Machinists Local 1061 and two other unions filed a complaint against the State of Wisconsin alleging that the “Right to Work” bill passed by the legislature (2015 Act 1) constitutes an unconstitutional taking of the plaintiffs’ property which violates Wisconsin Constitution Art. I, § 13. The plaintiffs argue that they have a property interest in their collective bargaining agreement with their private sector employers because they include security clauses (mandatory dues payments) which are a monetary interest. The plaintiffs then argue that 2015 Act 1 deprives them of their property without just compensation by prohibiting unions from charging non-members for its bargaining services which the unions are still obligated to provide. They contend that they are obligated to continue to provide these services to non-members because minority unions (unions that represent less than half of eligible employees) are prohibited under Wis. Stat. § 111.06(1)(e) and because the NLRA § 9 requires representatives designated by a majority of employees in a bargaining unit be the exclusive representative of all of the employees in the unit for collective bargaining purposes. Local 1061 asked the court to find Act 1 unconstitutional and permanently enjoin the implementation and enforcement of the law.
On March 19, Dane County Circuit Court Judge William Foust rejected Local 1061’s request to grant a temporary injunction blocking Act 1 from taking effect. Judge Foust rejected the request because even though there is “some chance that the plaintiffs would succeed on the merits . . . irreparable harm is speculative.” Therefore the law will remain in effect as the case continues.
After Judge Foust’s announcement Attorney General Brad Schimel released a statement that said, “We remain confident the Right-to-Work law ultimately will be upheld as constitutional.”
Wisconsin AFL-CIO President Phil Neuenfeldt issued a statement that said, “Today’s ruling is another injustice for working people. A temporary injunction is intended to halt immediate irreparable harm. Make no mistake, Right to Work will harm all of Wisconsin’s workers by driving down wages and weakening safety standards across all industries and workplaces. Despite this ruling, workers will continue to organize and mobilize, through their unions, to speak out for better wages and workplace conditions for all of Wisconsin’s working people.”
The Wisconsin Department of Justice has 45 days from March 19 to respond to the complaint or file a motion to dismiss the case.
By a partisan 63-36 vote, the Assembly passed AB 80, introduced by Representative Joan Ballweg (R-Markesan), which would establish “expedited” procedures for an agency to repeal a rule that the agency no longer has the authority to promulgate. Such rules can be rendered invalid because of the repeal or amendment of the law that previously authorized its promulgation. The bill as drafted, however, requires the agency to make the determination if a rule in no longer valid.
The process is considered expedited as it circumvents the statutory administrative rulemaking procedures set forth in Chapter 227. Under the bill, the agency submits a repeal petition to the Legislative Council staff. Then, the petition goes to the legislature’s Joint Committee for Review of Administrative Rules (JCRAR) for approval or rejection. If JCRAR approves, the agency may promulgate the proposed repealing rule.
The bill would also require agencies to submit a report to JCRAR each year that identifies rules for the following:
- For which the authority to promulgate has been eliminated or restricted;
- That are obsolete or that have been rendered unnecessary; or,
- That are duplicative of, superseded by, or in conflict with another rule, a state statute, a federal statute or regulation, or a court ruling.
Finally, the bill requires the Department of Administration (DOA) to review new laws and assign the act for review by each agency that DOA determines may be affected by the act. The agencies in turn must determine if the act limits their authority, renders the existing rules invalid, or otherwise affects the agencies rules. The agency review could then start the process for repealing invalid rules.
Bill Eliminates At-will Employment; Requiring Employers Prove Compliance with Seven-Part Termination TestTuesday, March 24th, 2015
Democratic legislators are circulating a bill that would generally prohibit an employer, including the state, from discharging an employee unless the employer meets a seven-part test. One element of the test requires the employer prove by clear and convincing evidence that the employee committed a violation of work rules or performance standards that were uniformly enforced and properly noticed. The bill allows the terminated employee to sue the employer and then requires the employer to prove all seven tests were met.
Specifically, the bill considers it an actionable wrongful discharge of an employee (deemed “unfair” under the law) if any of the following applies:
- The work rule or performance standard was not made known to the employee prior to the discharge.
- The employer failed to enforce the work rule or performance standard in similar situations for a prolonged period.
- The employer did not conduct an interview with the employee, or hold a hearing, concerning the violation prior to the discharge, did not conduct that interview or hearing promptly after the violation, or did not provide the employee with a precise description of the conduct constituting the violation.
- The employer did not prove by clear and convincing evidence that the employee committed the violation.
- The violation is the same as or substantially similar to a violation committed by another employee who was not discharged for committing the same or a substantially similar violation.
- Unless the violation is egregious, the employer failed to first apply a less drastic form of discipline for the violation.
- The discharge is disproportionate to the gravity of the violation, taking into consideration any mitigating or aggravating circumstances.
Governor Walker submitted his 2015-2017 biennial budget to the legislature on February 3. The governor’s proposed budget for the Judiciary (the State Supreme Court, the court of appeals, and the circuit courts) includes several initiatives intended to generate program flexibility and efficiencies through the creation of two block grants, Supreme Court Block Grant and Circuit Court Block Grant. The governor has also proposed the consolidation and elimination of several programs. This includes a proposal to eliminate the Judicial Council, the consolidation of appropriations for the Judicial Commission under the State Supreme Court, the creation of a Judicial Compensation Commission, and the modification of surcharge exemptions and court interpreter fees.
The governor’s recommended budget allocation for the Judiciary is $138 million in Fiscal Year (FY) 2016 and $138 million in FY 2017 for all funds (General Purpose Revenue – GPR, Program Revenue – PR, Segregated Revenue – SEG). This is a 0.27 percent increase from the adjusted base to the recommended FY 2016 budget and a 0.05 percent increase from FY 2016 to 2017. Over the biennium, the governor recommends a $76,400 increase to the judiciary’s budget. A breakdown of those totals is as follows:
- The governor’s recommended budget for the State Supreme Court is $29.76 million for FY 2016 and $29.81 million for FY 2017. This is a 5.6 percent decrease from the adjusted base to the recommended FY 2016 budget and a 0.2 percent increase from FY 2016 to 2017.
- The governor’s recommended budget for the court of appeals is $10.67 million for FY 2016 and $10.70 million for FY 2017. This is a 2.6 percent increase from the adjusted base to the recommended FY 2016 budget and a 0.3 percent increase from FY 2016 to 2017.
- The governor’s recommended budget for the circuit courts is $97.70 million for FY 2016 and 2017. This is a 1.9 percent increase from the adjusted base to the recommended FY 2016 and 2017 budgets.
Other recommended budget initiatives in the governor’s judiciary budget include:
Supreme Court Block Grant
The governor recommends consolidating GPR appropriations for the director of state courts and the state law library under the Director of State Courts and Law Library general program operations appropriation, funded at $10.3 million GPR each fiscal year. The governor recommends these appropriations be changed from annual to biennial. However, the proposed consolidation of these appropriations does not include a decrease in revenue to these programs. Furthermore, the governor recommends transferring the appropriation for library collections and services to the Director of State Courts and Law Library general program operations appropriation. The block grant system is designed to give Supreme Court justices more flexibility to determine how to spend its appropriation.
Circuit Court Block Grant
The governor recommends the creation of a new appropriation for circuit courts in the form of a block grant. Individual appropriations for court interpreter fees, circuit court support payments, and guardian ad litem costs will be transferred to the block grant. This block grant will be funded at $48 million GPR annually. Furthermore, all funding and position authority (527.0 FTE) from the circuit courts sum sufficient appropriation is recommended to be transferred to the block grant. In addition, all statutory language associated with these costs is recommended to be deleted.
Under the governor’s proposed budget, he suggests the repeal of appropriations for statutory court interpreter fees, circuit court support payments, guardian ad litem costs, and violent crime court costs and programs.
The intent of the block grant program is to provide the circuit courts with greater flexibility to determine how their appropriations are spent. However, there is an error in the governor’s current budget recommendation that has not included full funding increases and related costs provided under a “standard budget adjustment” for 278 court reporter positions. The governor has stated that this was an oversight and lawmakers will fix this in the final budget.
Elimination of Surcharge Exemptions
Currently there are various exemptions from the civil clerk fee and justice information fee for failure to wear a seatbelt, smoking in a public place, failure to carry proof of motor vehicle insurance, and failure to carry a handicap permit. The governor recommends removing these fee exemptions. Projected revenue increases from the proposed changes are $348,800 PR and $871,900 GPR.
The governor also recommends adding “intoxicated operation of an aircraft” to the list of offense subject to the blood withdrawal surcharge.
The Judicial Commission was created by the state legislature in 1978 in response to the state constitution being amended. The Commission is currently independent of the State Supreme Court. Its function is to investigate possible misconduct and disability of judges and determine whether there is probable cause of either. If the Commission finds probable cause then it initiates and prosecutes a proceeding against the judge in the Wisconsin Supreme Court (unless a State Supreme Court justice is being prosecuted at which point a panel of three court of appeals judges will sit in judgment). The Supreme Court then determine if sanctions are needed and what, if any, sanctions are appropriate. The governor proposes to move the appropriations for administering the Judicial Compensation Commission to the Supreme Court. The governor’s proposal does not change the composition or function of the commission. However, some (such as Chief Justice Shirley Abrahamson) are concerned that if the Supreme Court administers the appropriations of the Commission, then the Commission will seem dependent on, and thus biased towards, the Supreme Court. The proposal includes the creation of 2.0 additional FTE positions and the expenditure of $603,200 GPR over the biennium.
The governor proposes the elimination of the Judicial Council and its appropriations. The Judicial Council advises the Supreme Court, legislature, and governor on potential changes to the rules of pleading, practice, and procedure that would simplify procedure and promote a speedy determination of litigation on its merits. The Judicial Council also recommends changes to the business of the courts to the legislature.
Chief Justice Salary
The governor proposes eliminating the state statute that provides that the chief justice of the State Supreme Court must receive a different salary than the associate justices. The governor has stated the rationale behind this change is to allow all justices’ salaries to be raised.
Judicial Salaries & Judicial Compensation Commission
The governor proposes that the director of the Office of State Employment Relations can no longer recommend salary changes of Supreme Court justices, court of appeals judges, and circuit court judges to the Joint Committee on Employment Relations (JCER). Instead, the governor proposes the creation of a Judicial Compensation Commission. The Commission will review judicial salaries biennially and make recommendations annually via a written report on the status of those salaries to JCER and the governor’s office. The Director of State Courts will provide staff and support services to the judicial compensation commission. The chief justice’s salary is currently $155,403. A current associate justice salary is $147,403.
Division of Hearings and Appeals
The governor proposes repealing the requirement that the Division of Hearings and Appeals (DHA) must appoint hearing examiners to make findings and orders in contested cases of crime victim compensation and contested cases involving health care providers. Instead, the governor proposes that the Department of Justice (DOJ) be able to issue initial decisions in these cases. The DOJ would have the ability to contract out to the DHA to provide these services.
CCAP Revenue Decrease
The governor proposes a decrease in the CCAP allocation by $3.3 million annually from base funding of $10 million PR annually to $6.6 million PR annually to reflect recent expenditures in the 2013-15 biennium. The state spent $7.5 million PR on CCAP in the 2013-14 fiscal year.
Uniform Chart of Accounts
The governor proposes the elimination of the current statutory provision authorizing the Director of State Courts to create a uniform chart of accounts that each circuit court is required to use to record all financial transactions relating to the operation of the circuit. The director could the audit financial information provided by the circuit courts. The governor also proposes the deletion of the requirement that the director of state courts annually report the financial data from the uniform chart to the governor and the legislature.
Court Interpreters Funding
The governor proposes using revenues from penalty surcharges instead of justice information surcharges in order to fund courtroom interpreters.
The U.S. Government Accountability Office has determined the value of all assets in asbestos-related bankruptcy trusts is $36 billion. Over five decades, asbestos litigation is the longest running mass tort litigation area in the history of the United States. With over 730,000 lawsuits filed and $50 billion paid out in compensation over that time period it is also among the most expensive. However, 730,000 lawsuits could be just the beginning as some experts have estimated that there could be 2.6 million more lawsuits over the next three decades with a cumulative $270 billion in liabilities. Congress has perennially tried to pass legislation meant to keep asbestos-related trusts solvent and reduce litigation.
The current piece of legislation before Congress is the Furthering Asbestos Claim Transparency (FACT Act) of 2015. The bill seeks to amend title 11 of the U.S. Bankruptcy Code to require asbestos-settlement trusts to release information on victims seeking compensation due to asbestos-related injuries in quarterly reports. This disclosure is seen by many as a remedy to the major problem of fraudulent, inflated, or duplicative checks that find their way to plaintiffs’ mail boxes around the country. This problem is largely due to the lack of a mechanism in the Bankruptcy Reform Act of 1994 for asbestos trusts to share claims data with each other and the courts in order to stop attorneys and claimants from using this lack of transparency to receive duplicative benefits.
The bill is currently in the House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law. The subcommittee held a hearing in mid-February that highlighted the fraud this bill seeks to remedy. Specifically, much of the testimony was focused on In Re Garlock Sealing Technologies. In this case the asbestos plaintiffs’ attorneys withheld evidence of exposure to asbestos containing materials manufactured by companies that have bankruptcy asbestos trusts in order to maximize plaintiffs’ (and counsel’s) recoveries by increasing Garlock’s settlement costsHowever, Garlock proved the settlements were inflated and this eventually led the company to file four racketeering lawsuits against the plaintiff law firms. No other hearings are schedule at this time.
Further Reading: Law prof’s Garlock testimony details asbestos lawyers’ change in strategy: Legal Newsline Legal Journal, February 23, 2015.
On September 24, the Court of Appeals, Dist. IV located in Madison held that the statutory limits of $250,000 on damage awards against state employees, including University of Wisconsin Hospital physicians, was constitutional. The case is Fiez v. Keevil, 2013AP2711 (Sept. 24, 2014).
Defendant Robert Keevil, a physician employed by the University of Wisconsin Medical School, provided care to the plaintiff, Robert Fiez. During trial, the jury found Keevil negligent and awarded damages to Fiez of more than $1 million. The circuit court then applied the statutory cap under Wis. Stat. § 893.82(6), which limits damages for state employees at $250,000.
The plaintiff appealed arguing that the $250,000 limit violated the Wisconsin Constitution’s equal protection clause, Wis. Const. art. I, § 1 .
Court of Appeals Upholds $250,000 Statutory Limit
In a unanimous decision, the Court of Appeals held that the statutory limit was constitutional. The Court rejected the plaintiff’s arguments noting that “it is within the power of the legislature to use a damages cap to preserve public funds by allowing for fiscal planning and avoidance of high judgments.”
Milwaukee Judge Ignores Wisconsin Legislature, Strikes Down Limits for Non-Economic Damages in Medical Malpractice CasesThursday, October 9th, 2014
On Friday, October 3, Milwaukee County Judge Jeffrey Conen issued an order and decision in which he struck down Wisconsin’s $750,000 limit for non-economic damages medical malpractice cases. The case is Mayo v. Wisconsin Injured Patients Compensation Fund, et al., 2012CV006272 (Oct. 3, 2014).
The plaintiff, Ascaris Mayo, went to the emergency room suffering from a fever and acute abdominal pain. The physicians (defendants) included a possible infection in their diagnosis, but ultimately treated Mrs. Mayo for uterine fibroids based on her medical history. She was discharged and instructed to visit her gynecologist.
Mrs. Mayo’s illness worsened, and she visited a different emergency room the next day. She was diagnosed with a septic infection caused by Strep A. As a result of the infection, Mrs. Mayo had all four limbs amputated.
Mrs. Mayo and her husband (Mr. Mayo) filed a lawsuit against the physicians and the Wisconsin Patients and Family Compensation Fund, claiming the defendants were negligent in their diagnosis and treatment of Mrs. Mayo.
The jury found that defendants were not medically negligent in their diagnosis and treatment of Mrs. Mayo. However, the jury found that the defendants failed to properly inform Mrs. Mayo about the availability of antibiotics to treat her suspected infection. In addition, the jury found that the defendants’ failure to discuss the possibility of infection or the availability of antibiotics was a cause of Mrs. Mayo’s injuries.
The jury awarded Mrs. Mayo $9 million in economic damages and $15.5 million in noneconomic damages. The jury also awarded Mr. Mayo $1.5 million in noneconomic damages for loss of society and companionship.
Judge Conen Strikes Down Statutory Limits on Noneconomic Damages
In a surprising decision, Judge Jeffrey Conen ignored the Wisconsin Legislature’s reasonable limit of $750,000 for noneconomic damages and held that the law was unconstitutional as applied to the Mayos.
In 2006, the Wisconsin Legislature enacted the new $750,000 limit for noneconomic damages in medical malpractice cases after the Wisconsin Supreme Court struck down the previous $350,000 limit on noneconomic damages in a highly controversial decision, Ferdon ex rel. Petrucelli v. Wis. Patients Comp. Fund, 2005 WI 125.
Judge Conen held that the statute violated the Mayos’ right to due process and equal protection and thus unconstitutional. Judge Conen limited his decision by holding the statute unconstitutional as it applies only to the plaintiff, as opposed to a facial challenge. Therefore, Judge Conen’s decision does not strike down the statute in all cases.
Case Likely to be Appealed and Overturned
Judge Conen’s decision is an outlier and likely will not be upheld by the court of appeals or the Supreme Court of Wisconsin. The decision likely will be overturned based on another recent court of appeals decision (Fiez v. Keevil, 2013AP2711) upholding the $250,000 limits for damages against state employees as constitutional. For more information about the Fiez decision, please click here.)
 The Injured Patients and Families Compensation Fund provides payments to injured patients for malpractice claims that exceed a health provider’s primary malpractice coverage.
On Wednesday, October 1, the Supreme Court of Wisconsin heard oral argument in a case that involves an important issue to Wisconsin employers who hire employees on an at-will basis and seek to protect themselves with non-competition, confidentiality, and non-solicitation agreements (hereinafter, “Non-Competes” or “Agreements”).
The opinion of a Milwaukee County Circuit Court that is under review invalidated a Wisconsin employer’s Non-Competes with its at-will employees in Wisconsin. The Milwaukee Circuit Court held if an employer seeks to update its Non-Competes with existing at-will employees, it cannot simply make the signing of such agreements a condition of the at-will employees’ continued employment.
In 2008, Runzheimer Int’l, Ltd. (“Runzheimer”) updated its current Non-Competes to better protect its proprietary information and business model. Each employee presented with the updated Non-Compete was an at-will employee, and was informed that he or she could not continue to work at Runzheimer (and be exposed to Runzheimer’s proprietary information) unless he or she executed the updated Non-Compete. Any employee that executed the updated Non-Compete would receive continued employment and would be allowed to participate in the following years’ employee bonus incentive plan.
David Friedlen, an existing at-will employee at Runzheimer, elected to keep his job and execute the updated Non-Compete. Friedlen not only kept his job for over two years thereafter, but was allowed into the bonus incentive program and earned over $20,000 under it the year after he executed the Agreement. After his employment was terminated, he went to work for a Runzheimer competitor in Massachusetts in violation of the Agreement, and asserted it was unenforceable because he did not receive sufficient consideration for it.
Friedlen argued that because he was an at-will employee, he could have been terminated at any time after he signed the Agreement and, if he had been terminated shortly thereafter, he would not receive “continued” employment or the benefits of the incentive plan paid out the next year.
Trial Court Decision
The Milwaukee County Circuit Court agreed with Friedlen and invalidated Runzheimer’s Non-Competes. It held that because at-will employees could be terminated at any time, offering them continued employment as consideration is illusory. It also held the incentive plan was illusory, because any consideration that was tied to the continued employment would also disappear if the employee was terminated. Thus, although the Wisconsin Supreme Court has held since 1933 that at-will employment is sufficient consideration to support Non-Competes, even though it can be terminated at any time, this circuit court created an exception for existing at-will employees.
After reviewing the case, the Court of Appeals certified the issue to the Supreme Court for resolution.
Supreme Court Oral Argument
While it is almost impossible to discern how the Supreme Court will decide a case based solely on oral argument, it can provide clues as to how the individual Justices view the case.
Based on the line of questioning, it appears that the decision may come down to the typical judicial conservative and liberal blocs on the Court. For example, two the conservative Justices, Michael Gableman and Annette Zielger, did not appear to accept the arguments for counsel representing the employee based on their questions and direct statements.
Meanwhile, Chief Justice Shirley Abrahamson’s line of questioning suggested that she was sympathetic to the employee’s situation and would require some form of consideration beyond promised continued employment when requiring an existing employee to sign a restrictive covenant, or non-compete.
WCJC and WMC File Amicus Curiae Brief
The Wisconsin Civil Justice Council and Wisconsin Manufacturers & Commerce filed an amicus curiae brief in the case arguing that if the Milwaukee County Circuit Court’s ruling is not overturned, it will have a broad and detrimental impact on Wisconsin employers’ ability to protect their proprietary processes and information. WCJC and WMC also assert that Wisconsin courts frequently alter the law of Non-Competes, rendering previously-enforceable agreements unenforceable and necessitating that employers update them. Employers generally do so by requiring existing, at-will employees to sign them as a condition of further employment. Under the existing Milwaukee County Circuit Court ruling, employers will be required to offer consideration such as upfront cash payments to their entire at-will workforce if they want to do nothing more than alter their Non-Competes to account for changes in their business or comply with existing law.
The case is Runzheimer Int’l, Ltd. v. Friedlen, 2013AP1392. A decision by the Supreme Court is expected before the end of its term in July 2015.