United States District Court, E.D. Wisconsin
DECISION AND ORDER
William C. Griesbach, Chief Judge
Megan Schetter brought this diversity action against Newcomer
Funeral Home, her former employer, seeking a declaration that
the employment agreement she entered into on May 21, 2014 is
void under Wisconsin law as an impermissible restrictive
covenant. Newcomer, a Kansas corporation with its principal
place of business in Topeka, filed an answer, a counterclaim
against Schetter, and a third-party complaint against Lyndahl
Funeral Home, Schetter’s current employer. Lyndahl and
Schetter, both Wisconsin citizens, subsequently filed a
motion to dismiss, and that motion is presently before me.
For the reasons given below, the motion will be granted in
part and denied in part.
was the managing funeral director at Newcomer’s Green
Bay location. On May 21, 2014, more than two years after she
began working for Newcomer, she was asked to sign an
agreement prohibiting her from working for a competitor,
within "a radius of 25 miles of the funeral home in
which Employee is employed or any other location owned or
operated by any of the corporations first listed above."
(ECF No. 1-1 at ¶ 7(a).) The preamble of the agreement
listed Newcomer Funeral Service Group, Inc., as well as
Heartland Management Company and Warren Family Funeral Homes.
The non-compete clause was to be effective for two years
following termination of the agreement. (Id.) The
agreement also contained a severability clause and a
provision stating that the agreement would be governed by
Kansas law. Schetter signed the agreement and received a
outset, a procedural point needs explanation. Although the
motion is styled as a motion to dismiss the third-party
complaint and the counterclaims, the brief asserts that the
"entire case" should be "dismissed." (ECF
No. 17 at 3, 13.) Coming from Schetter, the Plaintiff who
brought the action in the first place, dismissal is an
unusual request. Instead, I will construe the motion as one
seeking judgment on the pleadings. In essence, Shetter and
Lyndahl (collectively "the Movants") assert that
Newcomer’s defenses and claim for breach of contract
are meritless because the underlying agreement is
void-exactly the same basis for Schetter’s claim
seeking a declaratory judgment. Thus, if she wins her motion,
it would be a declaratory judgment she receives, not merely
dismissal of the action.
Choice of Law
first question is whether Wisconsin or Kansas law applies. As
noted above, the contract provides that the governing law
comes from Kansas, but the Movants assert that Wisconsin
courts will not honor such choice-of-law clauses if they are
in violation of fundamental Wisconsin public policy or
statute. "[S]tatutes or common law which make a
particular type of contract enforceable, e.g., usury laws, or
which make a particular contract provision unenforceable,
e.g., laws prohibiting covenants not to compete, or that are
designed to protect a weaker party against the unfair
exercise of superior bargaining power by another party, are
likely to embody an important state public policy."
Bush v. Nat'l Sch. Studios, Inc., 139 Wis.2d
635, 643, 407 N.W.2d 883, 887 (1987). "Accordingly, if
Wis.Stat. § 103.465 applies to this action public policy
concerns would mandate overriding the parties'
contractual choice of law stipulation." Cty.
Materials Corp. v. Allan Block Corp., 431 F.Supp.2d 937,
950 (W.D. Wis. 2006).
Beilfuss v. Huffy Corp., the court refused to apply
a foreign choice-of-law provision because Ohio’s law
governing covenants not to compete differed from
Wisconsin’s: "Wis. Stat. § 103.465 makes it
the public policy of this state that ‘[a]ny ...
restrictive covenant imposing an unreasonable restraint is
illegal, void and unenforceable even as to so much of the
covenant ... as would be a reasonable restraint.’ On
the other hand, Ohio law permits selective enforcement or
judicial modification of an unreasonable covenant not to
compete so as to enforce the covenant deemed
reasonable." 2004 WI.App. 118, ¶ 15, 274 Wis.2d
500, 508-09, 685 N.W.2d 373, 377 (Wis. Ct. App. 2004). The
same is true here: Kansas law allows courts to reform
agreements to the extent they are unreasonable, while
Wisconsin takes the "red pencil" approach and
strikes the entire covenant. Puritan-Bennett Corp. v.
Richter, 8 Kan.App.2d 311, 315-16, 657 P.2d 589, 593
(Kans. App. Ct. 1983) ("if an agreement is unreasonable
in scope but otherwise enforceable, the court may alter its
terms to shape a remedy which affords the plaintiff the
contemplated protection.") Accordingly, I conclude that
applying Kansas law to this dispute would offend Wisconsin
public policy. Wisconsin law therefore applies.
Reasonableness of the Non-Compete Clause
well established that Wisconsin law disfavors employment
covenants that restrict the ability of employees to engage in
their chosen pursuit. Heyde Cos., Inc. v. Dove
Healthcare, LLC, 2002 WI 131, ¶ 13, 258 Wis.2d 28,
654 N.W.2d 830 (Wis. 2002) ("[T]he fundamental right of
a person to make choices about his or her own employment is
well-established. ‘[N]o one has the legal right ... to
deprive a person of the right to labor for whomsoever he
will, with the consent of such other.’" (citation
omitted). To be enforceable, a covenant must:
(1) be necessary for the protection of the employer, that is,
the employer must have a protectable interest justifying the
restriction imposed on the activity of the employee; (2)
provide a reasonable time limit; (3) provide a reasonable
territorial limit; (4) not be harsh or oppressive as to the
employee; and (5) not be contrary to public policy.
Streiff v. Am. Family Mut. Ins. Co., 118 Wis.2d 602,
613, 348 N.W.2d 505, 511 (1984).
other hand, courts must accept that, in some cases, employees
are perfectly rational actors entitled to reach agreements
with their employers, even if they later regret them. Here,
Newcomer asserts that the clause at issue is not a
run-of-the-mill non-compete attempting to restrain trade for
a wide range of employees; instead, it was an agreement with
a key employee (the funeral director) tailored to the narrow
and reasonable purpose of preventing Schetter from using
confidential information she learned at Newcomer to later
compete with her employer.