Friday, March 23, 2012

Fullerton Lumber Co. v. Albert Torborg case brief

Fullerton Lumber Co. v. Albert Torborg; (Sup. Ct. of WI, 1955); CB 393; Notes 48
Non-compete – restrictive covenant for unreasonable period of time
  • Facts: P sued D who had noncompete w/D that if he ceased to be employed with P then for 10 years couldn’t work directly or indirectly w/any lumber establishment w/in 15 miles of Fullerton. Ds job was to develop relationships with customers, so P worried about risk that D would set up his own company. D quit, set up own business, took employees w/him. P seeking what remedy?: negative injunction to prevent D from taking his clients, not from D returning; also monetary damages b/c financial impact on P’s business.
  • Holding: 10 years too long for D not to be able to pursue his talent. In the court’s view, 3 years reasonable b/c that is how long it took D to build up his business. Court says this is coercion—this is not just meant to prevent unfair competition, but also to hold D in his position and cut him off from reasonable alternatives. Court applies rule that it will only enforce reasonable restraint—so in this case, the injunction should run from the date of the decision for three years because that is what the court saw as a reasonable time period. Thus, the court is essentially rewriting the contract.
  • Rule: Restrictive covenants are lawful and enforceable if employer meets established necessity and reasonableness, facts must be scrutinized by court to determine if employee is restrained beyond the point where he could be reasonably anticipated to injure D business.
  • Three possible approaches:
1. Replace provision contrary to public policy to one that is reasonable
2. If it oversteps the bounds then it is completely void and unenforceable
3. “blue pencil” approach: look in the contract itself and throw out provisions that are invalid— then the court looks to see what is left. In Fullerton, when 10 years is thrown out, nothing is left. This is why the court says this is an indivisible provision. Many courts would then throw the whole thing out.
  • Commentary: the “blue pencil” approach invites employer overreaching b/c they’ll get away with it unless an employee challenges it. “All or nothing” test restored by the WI legislature after this case

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