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


MELVIN V TATES, Employe

FROHOCK STEWART INC, Employer

UNEMPLOYMENT COMPENSATION DECISION
Hearing No. 96606124MW


On August 6, 1996, the Department of Workforce Development issued an initial determination which held that the employe quit his employment but not for a reason allowing immediate eligibility for unemployment benefits. The employe timely requested a hearing on the adverse determination, and hearing was held on November 6, 1996 in Milwaukee, Wisconsin before a department administrative law judge. On November 18, 1996, the administrative law judge issued an appeal tribunal decision affirming the initial determination. The employe timely petitioned for commission review of the adverse appeal tribunal decision, and the matter now is ready for disposition.

Based on the applicable law and the records and other evidence in this case, the commission issues the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The employe worked four and one-third years for the employer, a manufacturer of medical supplies. The employe worked as national sales manager and, lastly, as a sales representative. His last day of work was July 8, 1996 (week 28), at which time his employment ended because of his refusal to sign a non-competition agreement prepared by his new employer. The issue is whether the separation was a discharge by the employer or a quit by the employe, and whether the circumstances of the separation are such as to render the employe eligible for unemployment benefits. The commission concludes that the separation was a discharge by the employer, not for misconduct, and that the employe therefore is eligible for unemployment benefits. The commission therefore reverses the appeal tribunal decision.

On February 29, 1996 (week 9), the employer was purchased by Invacare, Inc., and became a subsidiary of that corporation. The new owners of the employer required that all persons paid on an incentive basis had to sign non-competition agreements with the employer. The purpose of the non-competition agreements was to protect the employer's interest in trade information, new products, and price information. The individual signing the agreement consented to not act as an officer, director, partner, consultant, or employe of any competitor of the employer for a period of three years after termination of employment with the employer. The employer agreed to compensate an individual who could show to the employer's satisfaction that he or she was unable to obtain employment because of the non-competition agreement, at the individual's base pay rate at the time of termination.

The employer informed the employe that unless he signed the non-competition agreement his employment would be terminated. The employe refused to sign the non-competition agreement, because he had approximately 25 years' experience in the sales of medical supplies and he was 62 years old. He considered that the non-competition agreement would prevent him from obtaining employment in his field of experience and knowledge should his employment with the employer be terminated. By July 2, 1996 letter, the employer terminated the employe's employment effective July 8, 1996 (week 28), because of the employe's refusal to sign the non-competition agreement.

The administrative law judge found the separation to be a quit, on the ground that the employe's refusal to sign the non- competition agreement was conduct inconsistent with an intent to continue the employment relationship. In cases like this, a separation can easily be classified as either a discharge or a quit. If the employe's ultimate position is unjustified, then the separation can be either a discharge for misconduct or a quit not with good cause attributable to the employer. On the other hand, if the employe's ultimate position is justified, then the separation would be a discharge not for misconduct or a quit with good cause attributable to the employer. In this case, since the employer actually terminated the employe's employment, and thus was the moving party in the separation, the commission concludes that the separation was a discharge.

The dispositive issue is the reasonableness of the non-competition agreement the employer wanted the employe to sign. As indicated above, it prohibited the employe from acting essentially in any capacity whatsoever with any competitor of the employer, for a period of three years after the employe's termination of employment with the employer. Pursuant to sec. 103.465, Stats., a covenant not to compete within a specific time and a specific territory is lawful "only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any such restrictive covenant imposing an unreasonable restraint is illegal, void and unenforceable even as to so much of the covenant or performance as would be a reasonable restraint."  The covenant 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 employe; and (5) be reasonable as to the general public. Wausau Medical Center v. Asplund, 182 Wis. 2d 274, 282, 514 N.W.2d 34 (1994).

The non-competition agreement in this case is flawed. As with any contractual obligation, to be enforceable, a promise not to compete must be given in exchange for adequate consideration. The record indicates no such consideration to the employe. Initial offers of employment by themselves usually are adequate, but mere continuation of employment generally is not. In addition, to be enforceable, a restriction can apply only for a reasonable period of time, no longer than necessary to protect the employer's interests. Three years is too long. Further, the restriction also must apply only to a reasonable territory. In this case, though, the restriction essentially governs the entire industry the employe has worked in for the last 25 years. Finally, the restriction cannot be unduly harsh or oppressive to the employe. Given the employe's age and the breadth of the disqualification, the commission believes the restriction violates this standard as well. For these reasons, the commission believes the covenant violates sec. 103.465, Stats. and, as such, is "illegal, void and unenforceable." The employe's refusal to sign it therefore was not the intentional and substantial disregard of an employer's interests which is misconduct for unemployment purposes under sec. 108.04 (5), Stats.

The commission therefore finds that, in week 28 of 1996, the employe was discharged but not for misconduct connected with his employment, pursuant to sec. 108.04 (5), Stats.

DECISION

The appeal tribunal decision is reversed. Accordingly, the employe is eligible for benefits if he is otherwise qualified.

Dated and mailed February 3, 1997
tatesme.urr : 105 : 1  MC 610.04

Pamela I. Anderson, Chairman

Richard T. Kreul, Commissioner

David B. Falstad, Commissioner

NOTE: The commission did not confer with the administrative law judge, before determining to reverse the appeal tribunal decision. Such conferral is necessary where the commission is considering the reversal of an appeal tribunal decision, and credibility was a factor in the administrative law judge's fact-finding. Such is not the case here. The commission has adopted the facts found by the administrative law judge. The commission simply reaches the opposite legal conclusion because of the operation upon the non-competition agreement of sec. 103.465, Stats.

cc: VANDEN HEUVEL & DINEEN SC
ATTN LINDA S VANDEN HEUVEL

ATTORNEY DANIEL R DINEEN
VANDEN HEUVEL & DINEEN SC


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