Lakeside Oil Co. v. Slutsky
98 N.W.2d 415, 8 Wis. 2d 157 (1959)
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Rule of Law:
A restrictive covenant in an employment contract is enforceable if it is reasonably necessary to protect the employer's legitimate interests, such as customer relationships, and its restrictions on time and territory are not unduly harsh on the employee or injurious to the public.
Facts:
- A petroleum products company hired Slutsky as a salesman, although he had no prior experience in the industry.
- During his fifteen months of employment, Slutsky developed a strong personal rapport with the customers he acquired for the company.
- Sales were primarily based on customers' personal confidence in Slutsky, rather than on the plaintiff's product or pricing, as the business was highly competitive.
- Slutsky was the customers' main contact, and he was identified with the plaintiff's business in their minds.
- Slutsky's employment contract contained a covenant prohibiting him from competing with the plaintiff in Milwaukee County for two years after the termination of his employment.
- Slutsky's sales activities for the plaintiff occurred in Milwaukee, Waukesha, and Dane counties, but 75% of the plaintiff's business was concentrated in Milwaukee County.
- After leaving his employment, Slutsky started his own competing petroleum products business in Milwaukee County.
Procedural Posture:
- The plaintiff (employer) sued its former employee, Slutsky, in a state trial court, seeking to enforce a non-compete covenant in his employment contract.
- The trial court granted a temporary injunction preventing Slutsky from operating his competing business.
- Following a trial, the court entered a final judgment in favor of the plaintiff.
- Slutsky, the defendant, appealed the trial court's judgment to the Wisconsin Supreme Court.
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Issue:
Is a restrictive covenant in an employment contract, which prohibits a former salesman from competing in the petroleum products industry for two years within Milwaukee County, an unreasonable and unenforceable restraint of trade?
Opinions:
Majority - Hallows, J.
No, the restrictive covenant is not an unreasonable and unenforceable restraint of trade. A covenant not to compete is enforceable if it is reasonably necessary for the protection of the employer's legitimate interests, is not oppressive to the employee, and is not injurious to the public. Here, the plaintiff has a legitimate, protectable interest in the customer relationships Slutsky developed on its behalf, under the 'customer-contact theory.' The two-year time restriction is reasonable because it provides the plaintiff a sufficient period to have a new salesperson establish a relationship with customers who were contacted infrequently (on a seasonal basis). The geographic restriction to Milwaukee County is also reasonable as it is limited to the principal area of Slutsky's activities and the plaintiff's business, even though he also worked in other counties. Finally, the covenant imposes no undue hardship on Slutsky, who can use his sales skills in other industries or locations, nor is it injurious to the public interest, as it does not stifle competition or create a monopoly.
Analysis:
This case solidifies the 'customer-contact' theory as a basis for establishing a legitimate, protectable employer interest in enforcing a non-compete covenant. The court's decision provides a clear, multi-factor framework for analyzing the reasonableness of such covenants, balancing the employer's need to protect goodwill against the employee's right to work and the public's interest in competition. By upholding the covenant, the court affirmed that customer relationships developed by an employee are an asset of the employer that can be protected, even in the absence of traditional trade secrets. This ruling serves as a guide for drafting enforceable non-compete agreements and for litigating their validity based on specific factual circumstances.
