Court Opinion

ID: 9707342
Source: CourtListenerOpinion
Date Created: 2023-08-26 02:09:17.972839+00
Date Added: 2024-06-11T18:22:31.504660
License: Public Domain

SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE
¶ 27. (concurring). I agree with the dissent that the no-hire provision in the contract at issue in the present case is not directly governed by Wis. Stat. § 103.465 (1999-2000).
¶ 28. The plain language of Wis. Stat. § 103.465 limits its scope to covenants "by an assistant, servant or agent not to compete with his or her employer or principal."1 The contract at issue was not made by an assistant, servant, or agent and the employer. Rather, it was between two employers, restricting one employer's ability to hire former employees of the other employer. By this indirection, the employees' future opportunities of employment were restricted.
*45¶ 29. Section 103.465 does not, however, occupy the field of contracts in restraint of trade. Section 103.465 expresses a distinct legislative policy of discouraging certain covenants not to compete as an unreasonable restraint of trade.
¶ 30. The common law of the state survives the enactment of § 103.465. According to the common law of this state, unreasonable restraints of trade, including contracts unreasonably restricting employment of former employees, are contrary to public policy and void.2
¶ 31. I write separately to explain that the no-hire contract in the present case severely restricts future employment opportunities of employees without their knowledge or consent. People agreed to work as Greenbriar's at-will employees (meaning they were free to leave employment at any time and Greenbriar was free to terminate their employment at any time for almost any reason). When the at-will employment ceased, the former Greenbriar employees would find, to *46their surprise, that they were handicapped in getting new employment by a secret deal between Greenbriar and another business.
¶ 32. I agree with the court of appeals: "The no-hire provision violates public policy by restricting Greenbriar therapists the right to freely sell their skills in the labor market. Without signing any agreement or even being given notice . . . current and former Green-briar therapists are restricted from being employed by these facilities, unless Greenbriar gives consent and unless the facilities are willing to pay the fee."3
¶ 33. To assert that Greenbriar's employees are not "unreasonably restricted or otherwise hurt by the no-hire clause in the contract between Greenbriar and Dove"4 is to ignore the harsh realities of the job market. The dissent asks, "Why should Dove, which freely agreed to pay the 50 percent premium if it hired a Greenbriar employee, be entitled to avoid its contractual obligations by asserting that someone else has sustained a purely hypothetical injury?"5 The law of this State answers this question: freedom to contract, like other freedoms, has limitations.
¶ 34. The limitation on the freedom to contract in the present case is the public's interest in not allowing businesses to unduly and unfairly limit the ability of former employees to seek new employment. It is an unfair and an undue limitation on an employee's right to seek employment for an employer to contract away an employee's freedom of future employment without that employee's ever knowing about or consenting to *47the limitation. Employees should be able to decide whether they want to work for Greenbriar under these conditions. The secret deal cut in the present case between two businesses affecting non-consenting employees is unduly harsh and oppressive to the employees and is therefore contrary to the common law and public policy of the state of Wisconsin.
¶ 35. For the foregoing reasons, I concur in affirming the decision of the court of appeals.
¶ 36. DIANE S. SYKES, J. (dissenting). I respectfully dissent. The majority invalidates the contract at issue in this case, primarily on the basis of a statute that does not apply to contracts of this type, and, secondarily, on the basis of the public policy expressed in the inapplicable statute.
¶ 37. The majority analyzes this case as though it were a lawsuit between an employer and a former employee, but it is not. It is a breach of contract lawsuit between two sophisticated businesses. The contract is in writing and was freely entered into with no suggestion of undue influence or unequal bargaining power. One party has admittedly breached the contract and is now attempting to invoke statutory and public policy arguments that belong to employees, not businesses, in an attempt to avoid liability for the breach. The majority, like the court of appeals, has fallen for this subterfuge, and in so doing, has created a rule of law that effectively prevents companies in this state from achieving any contractual protection for their investments in employee recruitment and training against raids by their customers.
¶ 38. The majority concludes that the no-hire provision in the contract between Greenbriar Rehabilitation and Dove Healthcare violates Wis. *48Stat. § 103.465 and is therefore unenforceable. The statute, however, appears in the chapter entitled "Employment Regulations," and by its terms applies only to restrictive covenants in employment contracts:
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 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.
Wis. Stat. § 103.465 (emphasis added).
¶ 39. The Greenbriar/Dove contract is plainly not an employment contract. It is not a "covenant by an assistant, servant or agent not to compete with his or her employer" within the meaning of Wis. Stat. § 103.465. It is a contract between two businesses for the provision of professional services. The majority dismisses this distinction as "inconsequential." Majority op., ¶ 14. To the contrary, it is dispositive. The statute does not apply.
¶ 40. Dove contracted to receive rehabilitation therapy services from Greenbriar, and in so doing, agreed not to hire Greenbriar's employees, without Greenbriar's consent, for a specified term (while the contract for rehabilitation services was in effect and for one year thereafter). Dove further agreed to pay a specified penalty (50 percent of the employee's annual salary) if it hired a Greenbriar employee.
*49¶ 41. The majority states categorically: "[i]t cannot be disputed that this no-hire provision acts as a restrictive covenant on Greenbriar's employees." Majority op., ¶ 16. Well, yes, it can, because the truth is exactly the opposite: what is actually undisputed and undisputable here is that the no-hire clause did not bind or restrict Greenbriar's employees in any way. It imposed no territorial or other restriction whatsoever on where or with whom they might seek or obtain employment.
¶ 42. Greenbriar's at-will employee therapists were thus perfectly free to leave Greenbriar at any time and sell their services anywhere in the marketplace, even in competition with Greenbriar, and even to Greenbriar's customers. Greenbriar's customer, Dove, was contractually required to obtain Greenbriar's consent should it wish to hire any Greenbriar employee, and further required to compensate Greenbriar according to the terms of the contract if it did so. The no-hire provision conferred rights and imposed obligations on supplier and customer, not employer and employee. It therefore cannot be construed to be — or even to "act as" — an employee covenant not-to-compete of the type governed by Wis. Stat. § 103.465. See Majority op., ¶¶ 13, 16.
¶ 43. That the no-hire clause made Greenbriar's employees somewhat more difficult and expensive for Dove to hire does not trigger the application of Wis. Stat. § 103.465 or otherwise transform this business agreement into an employment contract for purposes of determining the statute's applicability. Greenbriar employed 33 therapists in the Eau Claire/Chippewa Falls region. There were 273 therapist jobs in the area, giving Greenbriar a market share of approximately 12 percent. Clearly, the nursing facilities that were Greenbriar's *50customers — including Dove — represent only a small fraction of the marketplace for therapists in the Eau Claire/Chippewa Falls area.
¶ 44. The majority states that the "explicit purpose" of the statute is "to invalidate covenants that impose unreasonable restraints on employees." Majority op., ¶ 13. Actually, the statute states that "[a]ny covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable . . .." Wis. Stat. § 103.465 (emphasis added). If a covenant is not one that is described in the subsection (that is, a covenant between an employer and employee), it cannot possibly violate the statute or otherwise implicate the statute's purpose.
¶ 45. The majority states that "Greenbriar is not allowed to accomplish by indirection that which it cannot accomplish directly." Majority op., ¶ 14. If by this the majority means that the no-hire provision is essentially the equivalent of an employee non-compete covenant, it is simply incorrect, for the reasons noted above. The contract between Greenbriar and Dove did not in any way bind Greenbriar's employees or prohibit their freedom of movement in the employment marketplace. It merely imposed a financial obligation on Greenbriar's client, Dove, should it wish to hire a Greenbriar employee.
¶ 46. There is another problem with the majority's statement that the no-hire provision attempts to "accomplish by indirection that which it cannot accomplish directly": it premises the determination of the statute's threshold applicability on a conclusion that it has been violated. This is odd reasoning, a little like saying "the statute governs employment *51agreements, which this obviously is not, but if it were, it would violate the statute, and therefore the statute must apply."
¶ 47. The majority relies on Tatge v. Chambers & Owen, Inc., 219 Wis. 2d 99, 579 N.W.2d 217 (1998), and Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202, 267 N.W.2d 242 (1978), but those cases concerned restrictive covenants contained in employment agreements, which, unlike the agreement at issue here, are squarely within the statute.
¶ 48. The majority also relies on broad language from several older cases regarding state statutes that "indirectly" contravene the constitution. Majority op., ¶ 14. These cases are. limited to constitutional violations, and do not support the notion that a party can avoid liability for breach of contract by invoking an inapplicable statute or alleging a violation of the rights of third parties who have suffered no injury. In any event, there is no constitutional argument present here.
¶ 49. Also, and perhaps most importantly, the scope of the majority's direction/indirection holding is uncertain. The majority places no limits on it, and so its sweep is potentially quite broad. Is it true that henceforward courts will have the authority to declare that a facially inapplicable statute nevertheless applies because it has been violated "by indirection"? This seems rather revolutionary.
¶ 50. If the statute does not apply, then the expression of public policy contained in it cannot possibly be implicated. The majority correctly notes that the statute was enacted in response to Fullerton Lumber Co. v. Torborg, 274 Wis. 478, 80 N.W.2d 461 (1957), and was intended to protect employees from those employers who, because of their superior bargaining *52power, could impose unreasonable and excessively restrictive non-compete covenants in employment agreements. Streiff v. American Family Mut. Ins. Co., 118 Wis. 2d 602, 608-09, 348 N.W.2d 505 (1984). That public policy is not implicated in a contract between two businesses such as the one at issue here.
¶ 51. Again, Greenbriar's employees are not unreasonably restricted or otherwise hurt by the no-hire clause in the contract between Greenbriar and Dove. Indeed, Dove hired Greenbriar's employees despite the no-hire clause. Nonetheless, the majority now concludes that a purely theoretical injury to Greenbriar's employees (which hardly rises to the level of an unreasonable or excessive restraint) somehow excuses Dove's liability for its breach of contract.
¶ 52. The majority's analysis of the no-hire provision under the five-part test for a valid employee non-compete under Wis. Stat. § 103.465 is also questionable. The majority concludes that the no-hire provision was unnecessary for the protection of the employer because the employer could have protected its investment by entering into non-compete agreements with its employees instead. Majority op., ¶ 17. Greenbriar's therapists were at-will employees. From the employees' standpoint (and the statute is intended to protect the interests of employees), how could an employee non-compete agreement possibly be considered an improvement over a no-hire agreement? In Tatge, the plaintiff, an at-will employee, was fired for refusing to sign a non-compete/non-disclosure agreement, and this court said he had no recourse. Tatge, 219 Wis. 2d at 123. An employee non-compete would restrict the employee's freedom of movement in the marketplace; the no-hire agreement between Green-briar and Dove does not.
*53¶ 53. Furthermore, the majority's evaluation of the necessity of the covenant appears to rest entirely on its conclusion that it is unreasonable. This is circular. The necessity (or lack thereof) of the covenant is one measure of its reasonableness under the test. The majority is basically saying that the covenant is unnecessary because it is unreasonable, therefore it is unreasonable because it is unnecessary.
¶ 54. The majority also concludes that the no-hire provision contains an "arguably . . . unreasonable territorial restriction," which is "potentially problematic." Majority op., ¶ 19. First of all, there are "arguable" or "potentially problematic" issues in every case; our job is to resolve the argument or problem one way or the other.
¶ 55. More importantly, the no-hire provision does not contain a territorial restriction at all; it only prohibits Dove from hiring Greenbriar's employees without consent and without paying a fee. That Greenbriar's contracts with its other customers contained similar no-hire clauses does not operate to create a "territorial restriction" for purposes of Wis. Stat. § 103.465, and certainly does not amount to an "unreasonable territorial restriction," considering that Greenbriar's area market share for therapists was only 12 percent.
¶ 56. On this point, the majority also notes the obvious — that nursing homes would prefer to hire therapists without having to pay a 50 percent premium —and then concludes that this puts Greenbriar's employees "at a disadvantage in obtaining employment," which apparently is unacceptable. Majority op., ¶ 19. By this measure, all no-hires and non-competes are per se unreasonable, because they always result in some *54competitive disadvantage to the relevant employees. The real question is, how much is too much? The majority does not say.
¶ 57. The majority also concludes that the no-hire provision is "harsh and oppressive to Greenbriar's employees and is contrary to public policy" because it was entered into without the employees' knowledge and consent and without consideration to the employees. Majority op., ¶ 20. Is the majority actually suggesting that an employee — every employee — has a veto, and a right to consideration, whenever his or her employer negotiates a contract with a customer that includes a no-hire clause? Why should Dove, which freely agreed to pay the 50 percent premium if it hired a Greenbriar employee, be entitled to avoid its contractual obligations by asserting that someone else has sustained a purely hypothetical injury?
¶ 58. The majority's reliance on Cheek v. Prudential Ins. Co. of America, 192 S.W 387 (Mo. 1916), aff'd Prudential Ins. Co. v. Cheek, 259 U.S. 530 (1922) is strained. The defendant insurance companies in that case had a complete monopoly — 100 percent market share — and agreed among themselves not to hire each other's employees. An outright prohibition of hiring across an entire market that operates, therefore, as a complete deprivation of the right to seek employment is a far cry from the facts of this case, in which hiring is merely burdened by a fee and 88 percent of the market remains completely open.
¶ 59. The majority's analysis of this case essentially makes all no-hire provisions unenforceable.1 The majority opinion therefore deprives companies in this *55state of the ability to contractually protect their investments in employee recruitment and training against poaching by their customers.
¶ 60. To the extent that Dove relies on broader arguments under Wis. Stat. § 133.01, which the majority does not address, its attempt to invalidate the no-hire provision must also fail. Wisconsin Statute § 133.01, Wisconsin's equivalent of section 1 of the Sherman Antitrust Act, declares contracts in restraint of trade illegal, and has been interpreted consistently with the "rule of reason" in federal antitrust law, to prohibit only unreasonable restraints of trade. Independent Milk Producers Co-op v. Stoffel, 102 Wis. 2d 1, 7, 298 N.W.2d 102 (Ct. App. 1980). Reasonableness is determined by reference to the purpose of the restraint, the market power of the party who benefits from the restraint, and the anticompetitive effect of the restraint. Grams v. Boss, 97 Wis. 2d 332, 348, 294 N.W.2d 473 (1980).
¶ 61. In Wisconsin, non-compete agreements between businesses (as contrasted with employer/employee non-competes) have been evaluated on the basis of a three-part test for reasonableness: 1) is the agreement reasonably necessary for the protection of the beneficiary; 2) is it reasonable as between the *56parties, considering the time, space, purpose and scope of the agreement; and 3) is it specially injurious to the public? Reiman Assoc, v. R/A Adven, Inc., 102 Wis. 2d 305, 309, 306 N.W.2d 292 (Ct. App. 1981). A no-hire agreement between a supplier and its customers is not technically the equivalent of a non-compete agreement between businesses, but it is analogous. There is some obvious overlap between this test and the test for a valid employee non-compete covenant under Wis. Stat. § 103.465, which I have already addressed at some length above.
¶ 62. While it is conceivable that some no-hire agreements would fail this test, I am satisfied that the no-hire provision in the contract between Greenbriar and Dove is not an unreasonable restraint of trade under Wis. Stat. § 133.01. It is reasonably necessary for the protection of Greenbriar's investment in the recruitment and training of its employees; otherwise, Greenbriar becomes an involuntary training and recruitment agency for Dove. Because it is intended to protect Greenbriar's investment in this regard, the agreement is also reasonable in purpose. It is also reasonable in time, in that it extends only one year after termination of the agreement. It is reasonable in scope, because it binds only Dove and does not entirely prohibit the hiring of Greenbriar's employees, but, rather, imposes only the requirements of consent and payment of a reasonable fee. And, finally, it is not especially injurious to the public, as there is no evidence that it has an anticompetitive effect on the market for therapists in the Eau Claire/Chippewa Falls area. Reasonableness as to space, which concerns territorial restrictions, is not at issue here, for the reasons noted in ¶ 20. See Reimann, 102 Wis. 2d at 312 n.6.
*57¶ 63. In short, neither Wis. Stat. § 103.465 nor Wis. Stat. § 133.01 provides refuge for Dove in this case. Wisconsin Statute § 103.465 does not apply, and the no-hire provision is not contrary to the public policy expressed in that statute. Furthermore, the no-hire provision is not unenforceable as an unreasonable restraint of trade under Wis. Stat. § 133.01. Accordingly, the no-hire provision is enforceable. "Contract law rests on obligations imposed by bargain," and its integrity depends in no small part on the willingness of courts "to protect the expectancy interests of parties to private bargained-for agreements" and "hold commercial parties to their promises." Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 404, 573 N.W.2d 852 (1998). I would reverse the court of appeals, and reinstate the judgment of the circuit court.
¶ 64. I am authorized to state that Justice ANN WALSH BRADLEY joins this dissent.

 Wis. Stat. § 103.465 (1999-2000).

 Section 103.465 "does not change the prior law of what constitute unreasonable restraints because the section only requires the restrictions as to time and place to be reasonably necessary for the protection of the employer. If such a contract is void for other reasons, such as public policy, or sec. 133.01(1), Stats., or creates an undue hardship upon the employee a court of equity will not enforce it." Lakeside Oil Co. v. Slutsky, 8 Wis. 2d 157, 162, 98 N.W.2d 415 (1959). See also Streiffv. Am. Family Mut. Ins. Co., 118 Wis. 2d 602, 613 n.5, 348 N.W.2d 505 (1984); Holsen v. Marshall & Ilsley Bank, 52 Wis. 2d 281, 190 N.W.2d 189 (1971).
For discussions of contracts in restraint of trade and against public policy, see, e.g., Restatement of Contracts §§ 514-15 (1932); Restatement (Second) of Contracts §§ 178-79, 186-88 (1979).

 Heyde Cos., Inc. v. Dove Healthcare, LLC, 2001 WI App 278, ¶ 13, 249 Wis. 2d 32, 637 N.W.2d 437.

 Dissent at ¶ 51.

 Dissent at ¶ 57.

 The majority has rewritten Wis. Stat. § 103.465 so that it now reads:
*55A covenant by an assistairtTsei vanl uj. agent not to compete with his ui lier employ ei or principal during tlie term uf tlie employment or agency,1 oraftei tlie termination of that employe ment 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 the employer or principal. Any covenant, described in Lhis 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.