Opinion ID: 2797640
Heading Depth: 2
Heading Rank: 3

Heading: NBZ and Star Direct

Text: ¶28 Two cases closely related to this case are NBZ and Star Direct. Both NBZ and Star Direct involved restrictive covenants for at-will employees. Runzheimer utilizes these two cases to argue that neither this court nor the Wisconsin Court of Appeals has ruled that forbearance of the right to terminate an at-will employee does not constitute lawful consideration for a restrictive covenant. Friedlen, on the other hand, argues 12 No. 2013AP1392 that NBZ is not dispositive of the issue but that our holding in Star Direct provides a ruling in his favor. The parties' conflicting reliance on these two cases suggests that an explanation of their holdings is necessary to clarify Wisconsin law. ¶29 In NBZ, the court of appeals addressed whether lawful consideration exists if an employer does not condition an existing at-will employee's continued employment on signing a restrictive covenant. NBZ, 185 Wis. 2d at 833. Studio 890, a beauty salon in Elm Grove, Wisconsin, required its employee, Paula Pilarski, to sign a covenant not to compete while she was in training. Id. at 833-34. About one year later, Pilarski left the salon and began working for one of Studio 890's competitors. Id. at 834. ¶30 Studio 890 sued Pilarski, seeking a permanent injunction which would require her to terminate her employment at the competitor's salon. Id. The court of appeals first concluded that a covenant not to compete must be supported by consideration, as it is subject to both common law contract principles and the Wisconsin Statutes.7 Id. at 836. 7 Wisconsin Stat. § 103.465 addresses restrictive covenants in employment contracts: A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of (continued) 13 No. 2013AP1392 ¶31 The court next addressed whether the covenant not to compete was supported by consideration, as Pilarski signed the covenant after her employment began. Id. at 838. The court held that the covenant was not supported by consideration because the evidence [did] not show that Studio 890 conditioned employment or promised to do anything in exchange for Pilarski's signing the covenant. Id. at 839. ¶32 The holding in NBZ was limited to a determination that a restrictive covenant between an employer and an existing atwill employee lacks consideration when the employer neither conditions the employee's continued employment on signing the covenant nor promises to do anything else in exchange for signing the covenant. This ruling did not affirmatively determine whether lawful consideration would exist if an employer expressly conditioned the existing at-will employee's continued employment on his or her signing a proffered restrictive covenant. ¶33 In Star Direct, this court addressed whether an employer can require new at-will employees to sign restrictive covenants when the employer does not require the same from existing at-will employees. Eugene Dal Pra was a route salesman working for CB Distributors before Star Direct purchased his the employer or principal. Any covenant, described in this subsection, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint. 14 No. 2013AP1392 route. Star Direct, 319 Wis. 2d 274, ¶7. Star Direct, wishing to retain the business on Dal Pra's route, offered to hire him on the condition that he sign a covenant not to compete. Id., ¶¶7-8. After working for Star Direct for about four years, Dal Pra quit and started his own competing company. Id., ¶12. Star Direct sought injunctive relief to prevent Dal Pra from violating his covenant not to compete. Id., ¶13. ¶34 Dal Pra argued that the covenant was unreasonable and unnecessary because Star Direct required only its new employees, not its existing employees, to sign covenants not to compete. Id., ¶49. In response to Dal Pra's allegation, the owner of Star Direct explained that there was the obvious risk that the current employees would not sign them if asked to, or would leave and begin competing with Star Direct. Id., ¶50. ¶35 We disagreed with Dal Pra that Star Direct's inconsistency amounted to unreasonableness or was unnecessary, as Star Direct's hiring policies following the acquisition of CB Distributors' routes remained consistent and proved that Star Direct legitimately feared the possibility that the new employees would later pose competitive risks. Id., ¶51. In reaching our conclusion, we cited NBZ for the principle that employers may not compel their existing employees to sign restrictive covenants without additional consideration. Id., ¶50 (citing NBZ, 185 Wis. 2d at 837-39). However, the Star Direct decision did not explain what would constitute additional consideration. 15 No. 2013AP1392 ¶36 Based on the quoted statement in Star Direct, Friedlen would like us to conclude that we have already addressed whether forbearance of the right to terminate an at-will employee is lawful consideration. According to Friedlen, our ruling in Star Direct demonstrates that an employer's promise of continued employment is not additional consideration. The circuit court ultimately read Star Direct as saying that an employer's promise of continued employment meant nothing because an at-will employee can be terminated at will. ¶37 Friedlen's reliance on these cases is flawed. NBZ tells us that no consideration exists when there is no evidence to show that the employer conditioned employment or promised to do anything in exchange for the employee's signing the covenant. NBZ, 185 Wis. 2d at 839. Star Direct simply does not address whether an employer's promise not to terminate the employment relationship satisfies the additional consideration requirement it describes. Therefore, Friedlen's contention that we have already ruled on this issue is incorrect.