Runzheimer International, Ltd. v. David Friedlen

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Appeal No. 2013AP1392 Cir. Ct. No, 2012C-V859

WISCONSIN COURT OF APPEALS
DISTRICT I

RUNZHEIMER INTERNATIONAL, LTD.,

PLAINIIFF-APPELLANT, FILED
’. APR 15, 2014
DAVID FRIEDLEN AND Diane M. Fremgen
CORPORATE REIMBURSEMENT SERVICES, INC., Clerk of Supreme Court
DEFENDANTS-RESPONDENTS.

CERTIFICATION BY WISCONSIN COURT OF APPEALS

Before Cunley, PJ., Fine and Brennan, JJ.

Pursuant to WIS. STAT. RULE 809.61, this appeal is certified to the
Wisconsin Supreme Court for its review and determination.

ISSUE

Is consideration in addition to continued employment required to
support a covenant not to compete entered into by an existing at-will employee?

BACKGROUND

This is an action by Runzheimer Intemational, Ltd. to enforce a
restrictive covenant agreement between Runzheimer and former employee David
Friedlen. The tnal court determined that the agreement—which Friedlen signed

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after nearly twenty years of employment with Runzheimer—was unenforceable
because the consideration that purportedly supported the agreement was illusory.
In 2009, after Friedlen had been working at Runzheimer as an at-will
employee for nearly twenty years, Runzheimer required Friedlen to sign a
restrictive covenant agreement. The reasonableness and scope of the agreement is
not directly relevant to the appeal.1 It suffices to say that the agreement prohibited
Friedlen from providing “restricted services” to any of Runzheimer’s competitors
within the geographic area that he had covered for Runzheimer during the course
of his employment. What is important is that by its terms, the agreement was a
condition of Friedlen’s continued employment and his participation in the
company’s yearly incentive plan.
The agreement provided no additional benefit beyond the
opportunity to remain employed. Friedlen remained an at-will employee who
could be fired at any time without cause. The agreement did not increase
Friedlen’s salary, nor did it make him eligible for incentives that he had not been
eligible for prior to signing the agreement. The sole benefit to Friedlen was the
opportunity to continue working for Runzheimer. Friedlen testified in his
deposition that he felt “forced” to sign the agreement and understood that he
would be fired if he refused to do so.
In 2011, about two years after Friedlen signed the agreement,
Runzheimer fired him, and, shortly thereafter, Friedlen began working for
1 Because the trial court found that the agreement was unenforceable due to a lack of
consideration, it did not reach the issue of whether the restrictions in the agreement were
enforceable under WIS. STAT. § 103.465. Therefore, neither do we.

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Corporate Reimbursement Services, Inc. (“CRS”), a Runzheimer competitor.
Runzheimer consequently filed the instant action against Friedlen and CRS
(hereafter collectively referred to as “Friedlen”) to enforce the restrictive covenant
agreement. Friedlen in turn moved for summary judgment, claiming that the
agreement was invalid because it lacked sufficient consideration. The trial court,
concluding that the opportunity to continue at-will employment and participate in
the yearly incentive plan were not additional forms of consideration but were
instead illusory, agreed with Friedlen and granted summary judgment.2
Runzheimer now appeals.
ANALYSIS
On appeal, Runzheimer argues that “the issue of whether continued
at-will employment is sufficient consideration for a restrictive covenant agreement
is a question of first impression in Wisconsin.” According to Runzheimer, no
Wisconsin case analyzes the situation here—where an existing employee enters
into a restrictive covenant after he or she has already begun working.
Runzheimer would have us reverse the trial court’s determination,
then, not on past precedent, but on the grounds that the trial court’s decision is
contrary to Wisconsin’s treatment of restrictive covenants entered into at the start
of employment. See, e.g., Wisconsin Ice & Coal Co. v. Lueth, 213 Wis. 42,
2 The trial court granted summary judgment on three of the four claims alleged in
Runzheimer’s amended complaint. It granted summary judgment on the claims for: Count I,
breach of contract against Friedlen; Count III, tortious interference with a contract against CRS;
and Count IV, tortious interference with prospective business relationship against both
defendants. The trial court denied summary judgment on Count II, common law
misappropriation of confidential information against both defendants. Friedlen and CRS do not
appeal the denial of summary judgment on Count II.

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43-44, 250 N.W. 819 (1933) (restrictive covenant entered into at start of at-will
employment is enforceable). According to Runzheimer, there should be no
difference in how courts treat restrictive covenants entered into at the start of
employment and those entered into after years of employment because “every day
is a new day both for employer and employee in an at-will relationship.” See
Copeco, Inc. v. Caley, 632 N.E.2d 1299, 1301 (Ohio Ct. App. 1992).
While Runzheimer initially appears to be arguing in favor of a rule
under which the mere opportunity to continue in an at-will position will suffice as
consideration, the company additionally suggests that we follow the lead of other
jurisdictions that follow this rule but include one important modification. In these
jurisdictions, continued at-will employment can suffice as consideration, but only
after a court evaluates the circumstances occurring after the restrictive covenant
was signed to determine whether the agreement was reasonable. For example, in
Illinois, continued at-will employment can constitute sufficient consideration for a
restrictive covenant, but the employee must remain employed for a “‘substantial
period’” after signing the agreement. See Curtis 1000, Inc. v. Suess, 24 F.3d 941,
946 (7th Cir. 1994) (citation omitted). See also, e.g., Lucht’s Concrete Pumping,
Inc. v. Horner, 255 P.3d 1058, 1062-63 (Colo. 2011) (en banc) (holding that
continued at-will employment can form consideration for a restrictive covenant in
Colorado, but that the agreement must then be assessed for “reasonableness,” and
noting that “‘legitimate consideration for the covenant exists as long as the
employer does not act in bad faith by terminating the employee shortly after the
employee signs the covenant’”) (citation omitted).
Adopting the aforementioned rule would require that Wisconsin
make an exception to the traditional rule that “the law does not inquire into the
adequacy of the consideration to support a promise, only its existence.” See

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Curtis 1000, 24 F.3d at 945 (suspending the “traditional” rule of refusal to inquire
into reasonableness of consideration for restrictive covenants made during course
of employment in Illinois); Brown and Brown, Inc. v. Mudron, 887 N.E.2d 437,
440 (Ill. App. 3rd 2008) (same); see also Town of Waukesha v. 164 of Waukesha
Ltd. P’ship, 2009 WI App 147, ¶21, 321 Wis. 2d 656, 774 N.W.2d 814 (“In
deciding whether there is consideration to support a contract [in Wisconsin], we
are not concerned with the adequacy of the consideration.”). But it would also be
consistent with the law in Wisconsin and elsewhere that all contracts must be
entered into and fulfilled in good faith. See Wisconsin Natural Gas Co. v. Gabe’s
Constr. Co., 220 Wis. 2d 14, 21-22, 582 N.W.2d 118 (Ct. App. 1998).
Runzheimer argues that adopting an exception to the traditional rule in these
circumstances is preferable to the alternative: a workplace in which employers
would circumvent any rule prohibiting restrictive covenant agreements for existing
employees by firing existing employees and rehiring them “the following day with
a fresh covenant not to compete.” See Curtis 1000, 24 F.3d at 947.
Friedlen, in contrast, argues that this is not an issue of first
impression. According to Friedlen, Wisconsin law already clearly states that
continued employment alone does not constitute sufficient consideration to
support a covenant not to compete; additional consideration is required. See Star
Direct, Inc. v. Del Pra, 2009 WI 76, ¶50, 319 Wis. 2d 274, 767 N.W.2d 898
(“employers may not compel their existing employees to sign restrictive covenants
without additional consideration”). Friedlen also points out that this rule, stated in
Star Direct, is followed in numerous jurisdictions—see e.g., Access Organics,
Inc. v. Hernandez, 175 P.3d 899, 904 (Mont. 2008); Labriola v. Pollard Grp.,
Inc., 100 P.3d 791, 794 (Wash. 2004); Cox v. Dine-A-Mate, Inc., 501 S.E.2d 353,
356 (N.C. Ct. App. 1998); Poole v. Incentives Unlimited, Inc., 548 S.E.2d 207,

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209 (S.C. 2001); Freeman v. Duluth Clinic, Ltd., 334 N.W.2d 626, 630 (Minn.
1983); Environmental Prods. Co. v. Duncan, 285 S.E.2d 889, 890 (W. Va.
1981)—and with good reason: “[w]hen a current employee is required to sign a
non-compete agreement, the employer and employee are not on equal bargaining
ground[;] the employee is vulnerable to heavy economic pressure to sign the
agreement in order to keep his job.” See Access Organics, Inc., 175 P.3d at 904.
Our review of the relevant authority leads us to conclude that both
parties are partially right. While Friedlen correctly quotes Star Direct for the
proposition that “employers may not compel their existing employees to sign
restrictive covenants without additional consideration,” see id., 319 Wis. 2d 274,
¶50, neither Star Direct, nor the case on which it relies for this conclusion, NBZ,
Inc. v. Pilarski, 185 Wis. 2d 827, 837-39, 520 N.W.2d 93 (Ct. App. 1994), is
factually analogous to the situation before us. Thus, it appears that while there is
some guidance available, the law in Wisconsin regarding this issue is unclear.
While Star Direct appears to be facially helpful, it did not concern a
restrictive covenant entered into by an existing at-will employee. Rather, Star
Direct considered whether a series of restrictive covenants—entered into at the
inception of a new employment relationship, see id., 319 Wis. 2d 274, ¶¶7-8—was
reasonably necessary to protect the employer’s business, see id., ¶¶49-50. The
employee seeking to invalidate the covenants noted that the employer had acted
inconsistently by requiring restrictive covenants from new employees but not from
existing employees, and claimed that this inconsistency was evidence that the
covenants were unreasonable and unnecessary. See id., ¶50. The supreme court
disagreed, noting that it was reasonable for a business to treat new employees
differently from current employees because “employers may not compel their

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existing employees to sign restrictive covenants without additional consideration.”
See id.
NBZ, on the other hand, did conclude that a non-compete agreement
entered into by an existing employee was unenforceable due to a lack of
consideration, but did so under different circumstances from those before us. In
NBZ, this court did not expressly answer the question of whether “continued
employment alone will serve as consideration for a covenant not to compete” as a
general matter. See id., 185 Wis. 2d at 838. Instead, we held that under the
particular circumstances before the court, there was no consideration. See id. at
837-39. Unlike the case before us, the employee’s continued employment was not
conditioned on her signing the non-compete agreement. See id. at 839 (“The trial
court found that continued employment was not conditioned on signing the
covenant.”). Indeed, the employer in NBZ did not promise to do anything in
exchange for the employee’s signing of the agreement. See id. Consequently, one
can read NBZ as implying that if the employer had conditioned continued
employment on the employee’s signing of the agreement, there may have been
sufficient consideration. However, this reading would contradict the language of
Star Direct.
Given the seemingly unsettled state of the law on this issue and the
circumstances before us, if we affirm the trial court based on the directive of Star
Direct, we risk contradicting the implicit holding of NBZ. See NBZ, 185 Wis. 2d
at 839 (emphasizing that employer did not predicate continued employment on
signing of the agreement). On the other hand, if we reverse the trial court, we
contradict the language of Star Direct, which we decline to do. See Zarder v.
Humana Ins. Co., 2010 WI 35, ¶¶57-58, 324 Wis. 2d 325, 782 N.W.2d 682 (court
of appeals may not “dismiss a statement in a prior case from [the supreme court]

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as dictum”); see also Cook v. Cook, 208 Wis. 2d 166, 189, 560 N.W.2d 246,
(1997) (“The supreme court is the only state court with the power to overrule,
modify or withdraw language from a previous supreme court case.”).
Additionally, if we look to what occurred after the agreement was signed to
discern whether there was in fact valid consideration, we necessarily create an
exception to Wisconsin law. Given these challenges, and the fact that resolution
of this issue not only requires careful consideration of public policy, but also
concerns circumstances that are undoubtedly likely to recur, we request the
guidance of the supreme court.
CONCLUSION
For the foregoing reasons, we respectfully request the supreme
court’s guidance as to whether additional consideration is required to support a
covenant not to compete entered into during an at-will employment relationship.