Facts
- Runzheimer International, Ltd., a business consulting company, employed David Friedlen as an at-will employee for more than 15 years.
- Runzheimer required existing employees to sign a restrictive covenant or face termination.
- Friedlen was given two weeks to review the covenant and was told to sign or be fired.
- Friedlen signed the restrictive covenant and continued working for Runzheimer for more than two years.
- Runzheimer terminated Friedlen in 2011.
- After termination, Friedlen began working for Corporate Reimbursement Services, Inc. (CRS), a direct competitor.
- Runzheimer sued Friedlen and CRS, alleging breach of the restrictive covenant, including a 24-month post-employment noncompetition restriction.
Issues
- Whether an employer’s forbearance from immediately terminating an existing at-will employee constitutes lawful consideration for the employee’s restrictive covenant.
- Whether the restrictive covenant should be treated as unsupported by consideration because the employer retained the right to terminate the employee at any time.
- Whether the case should be remanded for a separate determination of the covenant’s reasonableness under Wisconsin law.
Decision
- The Wisconsin Supreme Court reversed the circuit court’s summary judgment for Friedlen and CRS and remanded.
- The court held that an employer’s forbearance in exercising its right to terminate an at-will employee is lawful consideration for the employee’s agreement to a restrictive covenant.
- The court declined to decide whether the covenant’s specific terms were reasonable, leaving that question for further proceedings on remand.
Legal Principles
- Consideration may consist of a benefit to the promisor or a detriment to the promisee; forbearance of a legal right is valid consideration.
- An employer’s decision not to exercise its legal right to immediately discharge an at-will employee, in exchange for the employee’s assent to a restrictive covenant, supplies consideration.
- The mere fact that an at-will employer retains the ability to terminate employment later does not negate consideration.
- Concerns about bad-faith inducement or immediate termination are addressed through other doctrines and remedies (e.g., fraudulent inducement and the duty of good faith and fair dealing).
- Courts generally assess the existence, not the adequacy, of consideration.
- Even when supported by consideration, a restrictive covenant’s enforceability remains subject to a separate reasonableness review under Wis. Stat. § 103.465.
Conclusion
The Wisconsin Supreme Court held that continued at-will employment conditioned on signing a restrictive covenant is supported by lawful consideration because the employer forbears from immediate termination; the case was remanded to determine whether the covenant’s terms were reasonable and enforceable.