Wisconsin Appellate Court Affirms Rejection of overly Broad Noncompete Clause

In Madison Auto Center, LLC V. Lallas, 2023 Wisc. App. LEXIS 618 (Wis. Ct. App. June 8, 2023), the Wisconsin Court of Appeals upheld the dismissal of an action to enforce a noncompete clause against a former car dealership manager at the summary judgment stage, which occurs before any trial. Although the court recognized that the car dealership had an interest to be protected in a noncompete clause, they nonetheless held that the clause was overbroad and thus unenforceable. Under Wisconsin state law, a noncompete clause is unenforceable when any term is unreasonable. Diamond Assets, LLC v. Godina, 404 Wis. 2d 404 ¶15 (“the employer seeking to enforce a restrictive covenant has the burden to show that it is reasonable in all respects . . . . If the employer does not meet that burden, the covenant is struck in its entirety.”).  Applying this standard, the court took issue with two terms of the agreement in this case.

First, the clause contained a broad provision on what specific type of work Mr. Lallas could not perform after leaving the car dealership, which included a prohibition on working in automobile service. The court held that this was overly broad because an individual would have little opportunity to incorporate skills and information gained as a dealership manager while working as a service technician. Second, the clause contained a time and place restriction against engaging in work within one hundred miles of the car dealership for one year. In holding that this restriction was overly broad, the court pointed to the testimony of the dealership’s co-owner stating that the dealership had a customer base reaching thirty miles as proof that the one-hundred-mile provision was overly broad. The court then dismissed Madison Auto Center’s suit because of these unreasonable elements.

Although Wisconsin law places an emphasis on the total circumstances surrounding noncompete clauses, the court here granted summary judgment on the grounds that Madison Auto Center failed to introduce any evidence creating a material issue of fact that would need to be resolved at trial. Restrictive covenants like noncompete clauses are contracts subject to interpretation as a matter of law in Wisconsin. Diamond Assets, 404 Wis. 2d 404. This means that the judge can apply the facts to the law and resolve the case, as the judge did here by finding that the two provisions in the preceding paragraph were unreasonable. mhaeberle@pattersonlawfirm.com.   

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