STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

MICHAEL D ERNST, Employee

TOM-CIN METALS INC, Employer

UNEMPLOYMENT INSURANCE DECISION
Hearing No. 03402091AP


An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission agrees with the decision of the ALJ, and it adopts the findings and conclusion in that decision as its own.

DECISION

The decision of the administrative law judge is affirmed. Accordingly, the employee is ineligible for benefits beginning in week 18 of 2003 and until four weeks have elapsed since the end of the week of quitting and he has earned wages in covered employment performed after the week of quitting equaling at least four times his weekly benefit rate which would have been paid had the quitting not occurred.

Dated and mailed January 14, 2004
ernstmi . usd : 115 : 2  VL 1005  VL 1080.05 

/s/ David B. Falstad, Chairman

/s/ James T. Flynn, Commissioner

/s/ Robert Glaser, Commissioner

MEMORANDUM OPINION

The employee worked more than seven years in quality control for the employer, a metal goods manufacturer. In his position, the employee had access to and knowledge of the employer's designs, processes, programs, prints, and customers.

The commission agrees with the administrative law judge's findings that the employer discovered that, while the employee was on approved leave, he had performed services without pay for a business owned in part by his father-in-law and that this business was one of the employer's competitors; that the employee indicated that he would be an owner of this competing business at some point in the future; that the employer required as a condition of the employee's continuing employment that he no longer perform services for this competitor; that the employee refused to do so; and that the separation occurred as a result.

Although the employee contends that his understanding at the time of the separation was that the employer was requiring that he have no future contacts with his father-in-law and that he no longer travel to the community in which the competitor was located, the administrative law judge determined that the preponderance of the credible evidence does not support a finding to this effect. The commission finds no persuasive basis in the record for overturning this credibility determination.

Essentially, the employer was requiring that the employee enter into a non-compete agreement to the effect that, while he was employed by the employer, he would perform no paid or unpaid services for the competitor. The employee understood that he could continue working for the employer only if he so agreed.

The commission has generally held an employee's separation based on failure to accept the terms of a non-compete agreement to be a quit (Michelson v. N/C Services, Inc., UI Hearing No. 99606417MW (LIRC Dec. 22, 1999); Lynd v. Elite Services, Inc., UI Hearing No. 00400319GB (LIRC April 19, 2000); Sternemann v. Graphic Resources, Inc., UI Hearing No. 90605151WK (LIRC Oct. 23, 1990)). The only exception to the quit disqualification which could arguably apply here is set forth in Wis. Stat. § 108.04(7)(b), which provides for payment of benefits if an employee quits with "good cause attributable to the employing unit." The courts have defined "good cause attributable to an employer" to mean some act or omission that reasonably justifies the employee's decision to become unemployed rather than to continue working. It must involve some fault on the part of the employer and must be "real and substantial." Nottleson v. ILHR Department, 94 Wis. 2d 106, 120 (1980); Stetz v. DILHR, et al., Dane County Circuit Court, Case No. 136-215 (February 13, 1973).

The commission has recognized that an employee owes a duty a loyalty to his or her employer which involves, among other things, not engaging in activities in direct competition with the activities of the employer. Boehm v. Downtown TV, UI Hearing No. 88-402052WU (LIRC June 19, 1989), citing Erdmann v. DILHR and Bank of Menasha, Case No. 157-029 (Dane Co. Cir. Ct., Nov. 11, 1997), and Walus v. DILHR and Educational Service Programs, Inc., Case No. 140-292 (Dane Co. Cir. Ct., March 18, 1974).

The dispositive issue then is the reasonableness of the non-compete agreement at issue here. The commission has held that, to satisfy this requirement, a covenant not to compete must (1) be necessary for the protection of the employer, (2) provide a reasonable time restriction, (3) provide a reasonable territorial limit, (4) be reasonable as to the employee, and (5) be reasonable as to the general public. Tates, supra, citing Wausau Medical Center v. Asplund, 182 Wis. 2d 274, 514 N.W.2d 34 (1974).

Factors (3) and (5) are not really applicable here. Since the terms of the proposed agreement do not extend beyond the term of the employee's employment for the employer, the time restriction is a reasonable one (see, e.g., Tates, supra, (period of 3 years after end of employee's period of employment for employer is unreasonable)). Since the employer demonstrated at hearing that this competitor was attempting to move into part of the employer's agricultural market, that the employee had access to the employer's trade secrets, and that the employee had already assisted the competitor in its operation, the record shows that the agreement was necessary for the protection of the employer. See, Sternemann, supra. Finally, since the agreement would not prevent the employee from becoming employed by the competitor after he ended his employment with the employer, the agreement was reasonable as to the employee. See, Michelson, supra; Tates, supra.

The commission concludes that the terms of the subject non-compete agreement were reasonable and did not, as a result, provide good cause attributable to the employer for the employee's decision to quit.

cc: Jane Wons, New London Tax Service, New London, WI 54961


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