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Contract Enforceable Despite Unenforceable Covenant Not to Compete, Wisconsin Appeals Court Rules

 

Our Chicago non-compete contract litigators also practice in Wisconsin, so we were interested in a decision from that state’s Court of Appeals on the severability of a covenant not to compete. In Frank D. Gillitzer Electric Co., Ltd. v. Marco Anderson et. al., 2010 WI App. 31 (Jan. 20, 2010), the court reversed a grant of summary judgment for five former employees of an electrical contractor in Milwaukee. All of them had enrolled in a training program to become licensed electricians, and signed an agreement with Gillitzer that they would reimburse the company for the cost of schooling if they failed to finish it, or left Gillitzer within four years of completing it. The same contract said they also agreed not to join a competing business in the counties where Gillitzer does business within four years of leaving the company.

All five defendants dropped out or were kicked out of the apprenticeship program before finishing, but remained with Gillitzer until voluntarily resigning. After they left, Gillitzer sued them for the cost of the training. In trial court, the defendants moved for summary judgment. They argued that the non-compete portion of the agreement was unenforceably broad and inextricably linked to the repayment portion, making the entire agreement unenforceable. They also argued that the repayment provision was a restrictive covenant under Wisconsin law. The trial court granted the summary judgment and dismissed the case, triggering an appeal from Gillitzer.

On appeal, Gillitzer conceded that the non-compete part of the agreement was unenforceable. Wisconsin law favors former employees when examining the reasonableness of covenants not to compete. Streiff v. American Family Mutual Insurance Co., 118 Wis. 2d 602, 348 N.W.2d 505 (1984). Thus, the appeals court said, the issue was whether the training reimbursement part of the agreement was enforceable. The defendants argued that it was indivisible from the rest of the agreement, and thus, the entire agreement was indivisible under Wisconsin statutes sec. 103.465. Gillitzer argued that the two covenants are individual and divisible, and that the reimbursement portion is not a restrictive covenant under Wisconsin law.

The appeals court sided with Gillitzer. Using the divisibility test fashioned by the Wisconsin Supreme Court in Streiff, it looked at whether the reimbursement provision and the non-compete provision are interdependent and must be read together to be understood. In this case, they are not, the court said; they are “distinct, mutually exclusive [and] independent” under Streiff and can be separated with no loss of meaning. This would also be true under the more recent precedent set by Star Direct, Inc. v. Dal Pra, 2009 WI 76, 319 Wis. 2d 274, 767 N.W.2d 898, the court said, although it declined to reach the issue of whether Star Direct set a new divisibility test. Thus, it reversed the Milwaukee circuit court’s summary judgment order.


The business law firm of DiTommaso Lubin Austermuehle represents people in Illinois, Wisconsin and Indiana in litigation and conflicts over contractual covenants not to compete. Our Illinois non-compete agreement attorneys help individuals and businesses of all sizes defend their rights and their businesses in court, as well as evaluating and negotiating changes to employment and other contracts with non-compete clauses. We also handle related matters, such as trade secrets litigation and covenants not to solicit or hire a former company’s employees. From offices in Oakbrook Terrace and downtown Chicago, we serve clients in state and federal courts, including the Illinois Supreme Court and the Seventh U.S. Circuit Court of Appeals.

If you’re considering litigation over a non-compete clause or would like to avoid it, our Naperville covenant not to compete lawyers can help. For a consultation with one of our Chicago, Evanston, Warrenville, Elgin, Geneva, Aurora, Joiliet, Waukegan, Wilmette, Lake Forest, Highland Park, Wheaton, Oakbrook, Naperville trade secret and covenant not to compete lawyers, call us today at 1-877-990-4990 or send us a message through our Web site.