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Runzheimer Int'l, Ltd. v. Friedlen - 2015 WI 45, 362 Wis. 2d 100, 862 N.W.2d 879

Rule:

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.

Facts:

Defendant David Friedlen worked for plaintiff Runzheimer International, Ltd. ("Runzheimer") for more than 15 years when Runzheimer required all 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.  Runzheimer filed a lawsuit against Friedlen and CRS in Wisconsin state court, alleging causes of action for breached the restrictive covenant, misappropriation of trade secrets, and tortious interference with the restrictive covenant. Friedlen and CRS filed a motion for summary judgment, arguing that the covenant was unenforceable because it lacked consideration. The circuit court ultimately granted the motion on all but the misappropriation claim. On appeal, the court of appeals certified the case to the state supreme court to consider the issue of consideration for the restrictive covenant.

Issue:

Was Runzheimer's restrictive covenant invalid for lack of consideration?

Answer:

Yes.

Conclusion:

The state supreme court reversed the circuit court's judgment and remanded the cause for further proceedings. The court ruled that Runzheimer's forbearance in exercising its right to terminate Friedlen, an at-will employee, constituted lawful consideration for signing a restrictive covenant. It further ruled that it was of no consequence that Runzheimer's promise not to fire Friedlen was for an indeterminate period of time since the length of the promise's duration went to the adequacy of consideration, not the existence of lawful consideration.

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