Star Direct, Inc. v. Dal Pra
767 N.W.2d 898, 319 Wis. 2d 274, 2009 WI 76 (2009)
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Rule of Law:
Multiple restrictive covenants within a single employment contract are divisible and separately enforceable if they are not textually linked and can be independently read, understood, and applied. An unenforceable covenant does not invalidate other, reasonable covenants in the same agreement if they meet this standard of divisibility.
Facts:
- Star Direct, Inc. engages in the competitive business of distributing novelties and sundries to convenience stores, relying on relationships built by its route salespeople.
- Star Direct hired Eugene Dal Pra as a route salesperson after acquiring his previous route, offering him a $30,000 bonus for 30 months of service.
- Dal Pra's employment contract included three distinct restrictive covenants with 24-month post-termination limits: a 'business clause,' a 'customer clause,' and a 'confidentiality clause.'
- The 'business clause' prohibited Dal Pra from engaging in any business 'substantially similar to or in competition with' Star Direct within a 50-mile radius of Rockford, Illinois.
- The 'customer clause' barred Dal Pra from soliciting current customers or those who were customers within the past year, with whom he had dealt or about whom he had obtained special knowledge.
- After working for approximately four years and receiving his bonus, Dal Pra voluntarily quit his employment with Star Direct.
- Immediately upon quitting, Dal Pra started his own distribution company that sold products to convenience stores within the prohibited 50-mile radius, including to some of Star Direct's current and past customers.
Procedural Posture:
- Star Direct sued Dal Pra in the Circuit Court for Rock County for breach of the business and customer clauses of his employment contract.
- On cross-motions for summary judgment, the circuit court granted summary judgment to Dal Pra, concluding that all three restrictive covenants (business, customer, and confidentiality) were unreasonable and indivisible.
- Star Direct, as appellant, appealed to the Wisconsin Court of Appeals, with Dal Pra as appellee.
- The court of appeals affirmed the circuit court's decision, holding that the business clause was unreasonable and indivisible from the customer clause, rendering both unenforceable.
- Star Direct petitioned the Supreme Court of Wisconsin for review of the court of appeals' decision.
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Issue:
Does an unreasonable restrictive covenant in an employment contract render other, distinct restrictive covenants in the same contract illegal and void, or may the reasonable covenants be severed and enforced independently?
Opinions:
Majority - Gableman, J.
No, an unreasonable restrictive covenant does not automatically render other, distinct covenants unenforceable if the covenants are divisible. The 'business clause' is unenforceable because prohibiting engagement in a 'substantially similar' business is overbroad, as it could restrict non-competitive activities, which is not reasonably necessary for the employer's protection. However, the 'customer clause' is reasonable because an employer has a legitimate, protectable interest in its relationships with both current and recent past customers. Likewise, the 'confidentiality clause,' when read reasonably, is enforceable because it protects proprietary information, not all information. These three clauses are divisible because they are not textually linked, protect different interests (territory, customer relationships, confidential data), and can be read and enforced independently. Therefore, the unenforceable business clause can be severed, and the reasonable customer and confidentiality clauses remain enforceable.
Dissenting - Abrahamson, C.J.
The dissent joins Justice Bradley's opinion and writes separately to emphasize the legislative policy behind Wis. Stat. § 103.465. This statute was enacted to protect employees from employers' superior bargaining power by placing the burden on employers to draft reasonable restrictive covenants from the outset. The law intentionally makes unreasonable covenants entirely void to discourage employers from writing overbroad, 'in terrorem' clauses with the expectation that courts will rewrite or save them. The majority's approach to divisibility may undermine this legislative intent by making it easier for employers to enforce parts of an agreement that contains unreasonable restraints.
Concurring in part and dissenting in part - Bradley, J.
The opinion concurs that the business clause is unenforceable but dissents regarding the customer clause. Star Direct failed to meet its burden of proving it had a legitimate, protectable interest in its 'past customers,' particularly those who had already chosen to cease doing business with the company. Preventing an employee from contacting former customers is not reasonably necessary for the employer's protection. Furthermore, the majority's method of citing prior cases where this issue was not raised, and then claiming the courts were 'untroubled' by it, creates a flawed interpretive tool where silence is incorrectly construed as approval, which contradicts precedent and principles of judicial restraint.
Analysis:
This decision significantly clarifies the doctrine of divisibility for restrictive covenants in Wisconsin, moving away from a broad, functional test toward a more textual and structural one. By overruling the court of appeals' decision in Brass, the court makes it easier for employers to enforce discrete, reasonable restrictions even if another restriction in the same contract is found overbroad. This creates a strong incentive for employers to draft non-compete agreements with multiple, distinct clauses targeting specific protectable interests (e.g., territory, customers, trade secrets) rather than a single, all-encompassing provision. The ruling provides a clearer roadmap for drafting enforceable agreements while still holding that any single, indivisible covenant that is unreasonable in any part is entirely void.
