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Covenants not to compete incidental to the sale of a business are subject neither to the exacting scrutiny mandated by Wis. Stat. § 103.465 (2007-08) nor the statute's prohibition on partial enforcement. A common law reasonableness standard applies to a determination of whether such a covenant is enforceable.
Timothy Rinn was a high-level management employee who developed close relationships with customers. In return for the opportunity to purchase stock at a reduced price, he agreed not to solicit his former employer's customers for one year after leaving his position. Shortly after he began working for his current employer, Ganther Construction, Inc., Rinn contacted several of his former employer's customers. The former employer sued Rinn and Ganther, seeking injunctive relief and compensatory damages. At a preliminary injunction hearing, Rinn argued that the restrictive covenant contained in the stock option agreement was an overly broad and unenforceable restraint under WIS. STAT. § 103.465. The circuit court disagreed, finding no disparity in bargaining power between the parties. Thus, the circuit court enjoined Rinn, essentially adopting the stock option agreement’s confidentiality and noncompetition provisions in the injunction. Despite the injunction, Rinn continued contacting his former employer’s customers. The circuit court found Rinn in contempt for violating the injunction and dismissed his counterclaim for unpaid commissions as a sanction for discovery abuses.
Did WIS. STAT. § 103.465 apply to the noncompete agreement, thereby rendering it unenforceable?
The court affirmed the judgment of the circuit court. The court held that Wis. Stat. § 103.465 (2007-08) did not govern the covenant not to compete because buying stock was not a condition of employment and the former employer had no unfair bargaining advantage. According to the court, the covenant must be evaluated according to the common law’s rule of reason. In this case, the court found that the covenant was reasonably necessary to preserve the customer base, was reasonable as between the parties, and offended no public interest. Credible evidence supported the damages awarded, although no expert testimony was presented. The injunction was not overbroad. Dismissal of the counterclaim was a proper sanction under Wis. Stat. § 804.12(2)(a)3 (2007-08), based on an implied finding of egregious misconduct that included failing to supplement discovery responses under Wis. Stat. § 804.01(5)(c) (2007-08).