Court Opinion

ID: 9534668
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:41:55.610608+00
Date Added: 2024-06-11T13:30:59.796586
License: Public Domain

SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE
¶ 56. (dissenting). Under the majority opinion, Wisconsin employers are now free to present the following ultimatum to their at-will employees: sign a nondisclosure agreement (regardless of its legality), or you're fired. I conclude that the court should recognize the right of an employee-at-will who claims that a non*124disclosure agreement is void under Wis. Stat. § 103.465 to sue for wrongful discharge. For the reasons set forth, I dissent.
¶ 57. I agree with the majority opinion that "§ 103.465 evidences a strong public policy against the enforcement" of unreasonable trade restraints, majority op. at 114-15, and that § 103.465 is applicable to the nondisclosure clause in this case. Majority op. at 111-112. What the majority opinion fails to see, however, is that when an employer terminates an at-will employee for refusing to sign an illegal nondisclosure agreement, the employer is enforcing the illegal agreement.
¶ 58. Contrary to the majority opinion's assertion, enforcement of a nondisclosure agreement does not start when an employer attempts to prevent an employee from violating the agreement. Rather enforcement of a nondisclosure agreement starts when an employee is asked to sign the agreement. The language and the legislative history of Wis. Stat. § 103.465 make clear that § 103.465 was designed to govern the employer and employee in entering a covenant not to compete. The language of the statute refers to covenants governing the duration of employment and thereafter.
¶ 59. The drafting record of Wis. Stat. § 103.465 includes a letter by Representative Richard E. Peterson of Waupaca County to the legislative reference library giving drafting instructions for .§ 103.465. Representative Peterson explained that he wanted a bill drafted to reverse Fullerton Lumber Co. v. Torberg, 270 Wis. 133, 70 N.W.2d 585 (1955), in which the court enforced the reasonable aspects of an invalid covenant not to compete. Representative Peterson explained his concerns about Fullerton as follows: "[a]t the time the *125contract was entered into, the bargaining position of the two contractors appears to me to be relatively unequal in that the party seeking employment must, if he desires employment with the contracting party, consent to almost any restrictive covenant imposed. The effect [of the Fullerton decision] is to give to the employer complete latitude" in setting forth the terms of the agreement, including the geographical and time limits imposed.1
¶ 60. Representative Peterson wanted the bill drafted to put the two contracting parties in more equal bargaining positions and to avoid giving "a green light" to employers in writing agreements not to compete.2 The reasoning and result of the majority opinion are contrary to the legislative purpose of Wis. Stat. § 103.465.
¶ 61. With this background, I turn to the facts of this case.
I
¶ 62. One implication of the majority opinion is that the nondisclosure agreement in this case is void and hence illegal. The majority opinion concedes that the nondisclosure provision drafted by the employer in this case "contains virtually the same language," majority op. at 111-12, as the nondisclosure agreement *126in Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis. 2d 202, 267 N.W.2d 242 (1978). The Van Zeeland court struck down the nondisclosure agreement under Wis. Stat. § 103.465 because it contained no geographic or time limits. See Van Zeeland, 84 Wis. 2d at 218.
¶ 63. The nondisclosure agreement in this case, like the nondisclosure agreement in Van Zeeland, is unreasonable and void under Wis. Stat. § 103.465. But under the majority opinion, employers may force at-will employees to sign such illegal nondisclosure agreements under threat of termination of employment. Thus the majority opinion "tends to encourage employers possessing bargaining power superior to that of the employees to insist upon unreasonable and excessive restrictions." Streiff v. American Family Mut. Ins. Co., 118 Wis. 2d 602, 608-09, 348 N.W.2d 505 (1984). I know of no court, other than the court of appeals in this case, that has condoned the signing of an illegal nondisclosure agreement.
¶ 64. Although the nondisclosure agreement in this case appears to be illegal, in many instances the validity of a nondisclosure agreement is uncertain until a court makes a determination.3 Under the majority opinion an at-will employee who is uncertain about whether an agreement is legal has only one way to test the validity of the agreement: sign the agreement, breach the agreement, and wait until the employer sues to enforce it. This method is not risk-free as an employee may be liable in damages for breaching *127the agreement should a court later find the nondisclosure agreement to be valid.
¶ 65. Under the majority opinion, if an employee refuses to sign the agreement (regardless of its legality), the employee can be discharged. If an employee brings a declaratory judgment action to determine the validity of the agreement, the employee can be discharged.
II
¶ 66. The majority opinion puts employers in a win-win situation. If an employee refuses to sign a nondisclosure agreement (even if it is illegal), the employer can discharge the employee without liability for wrongful discharge. If the employee signs the agreement, the terms of the agreement loom over the employee both during the course of employment and afterwards.
¶ 67. The majority opinion justifies its holding by claiming that an employee "gambles little by signing the agreement." Majority op. at 122-23. What the majority opinion fails to recognize is that an employee presented with a nondisclosure agreement (regardless of its legality), incurs significant risks by refusing to sign or by signing the agreement. Representative Peterson apparently understood these facts of life when he proposed Wis. Stat. § 103.465.
¶ 68. An employee presented with a nondisclosure agreement is forced into a lose-lose situation. If the employee refuses to sign the agreement, the employee risks termination without any right to sue for wrongful discharge. If the employee signs the agreement, the employee risks a lawsuit and litigation expenses when he or she chooses to violate the agreement. Alternatively, the employee who signs the agreement may feel compelled to respect his or her *128contractual obligations (regardless of the legality of the agreement), thereby forgoing other employment opportunities in order to avoid litigation expenses. Moreover, prospective employers may refuse to hire an employee who has signed a nondisclosure agreement, regardless of their assessment of the legality of the agreement, for fear of buying themselves a lawsuit.4
¶ 69. As this court has recognized, "[a] principal argument against giving effect to reasonable aspects of a restraint is that the employer can fashion ominous covenants which affect the mobility of employees because of their in terrorem effect on employees who respect contractual obligations and their effect on competitors who do not wish to risk legal difficulties." Streiff, 118 Wis. 2d at 614 (citing Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 682 (1960)). The Streiff decision relied on the legislative history of Wis. Stat. § 103.465, including Representative Peterson's letter. The majority opinion ignores this legislative history.
¶ 70. The majority opinion places all the risk on an employee when an employer asks the employee to sign a nondisclosure agreement even though the employer has drafted the agreement and has the superior bargaining power. It seems to me that the fairness considerations set forth in the language and legislative history of Wis. Stat. § 103.465 require that some of the risks relating to the legality of the agreement should be placed on the employer who drafted the agreement and seeks to impose it. Ensuring that the employer and the employee share the risk comports with the legislature's *129instruction "as to the equities between the parties." Streiff, 118 Wis. 2d at 614.
¶ 71. Thus I conclude that the public policy of this state as reflected in Wis. Stat. § 103.465 requires that an employer who terminates employment of an at-will employee based on the employee's refusal to sign a nondisclosure agreement is liable for wrongful discharge if a court decides the agreement is void.
¶ 72. For the foregoing reasons, I dissent.
¶ 73. I am authorized to state that Justice Ann Walsh Bradley joins this dissent.

 See Representative Richard Peterson's letter to Mr. M.G. Toepel, Legislative Reference Library, Feb. 26,1957, in Legislative Drafting File, Wis. Stat. § 103.465; Stewart Macaulay, Supplementary Comments in Richard Danzig, The Capability Problem in Contract Law: Further Readings on Well-Known Cases, at 61 (1978).

 See Representative Richard Peterson's letter to Mr. M. G. Toepel, Legislative Reference Library, Feb. 26,1957, in Legislative Drafting File, Wis. Stat. § 103.465.

 Even in this case there may be some doubt about the legality of the nondisclosure agreement. Some commentators have criticized the reasoning of the Van Zeeland court, arguing that imposing territorial or time limits defeats the purpose of nondisclosure agreements. See III State Bar of Wis., Wis. Employment Law, § 15.75, at 15-78 to 15-79 (1994).

 See General Med. Corp. v. Kobs, 179 Wis. 2d 422, 425, 507 N.W.2d 381 (Ct. App. 1993) (plaintiff alleged tortious interference against competitor that hired ex-employee to work in violation of terms of restrictive covenant).