A half-dozen H&R Block employees in LaCrosse, Wisconsin, who had worked for the company for periods ranging from 10-25 years, left and within a few months began competing with their ex-employer. Each of the former employees had signed non-compete and non-solicitation covenants reciting that they lasted for a two-year period, but “such period to be extended by any period(s) of violation.” Seeking to enforce the covenants, H&R Block filed an injunction action immediately in a Wisconsin circuit court. The ex-employees moved for summary judgment on the ground that the restrictive clauses were unenforceable. H&R Block’s motion for an injunction was denied, the former employees’ motion for summary judgment was granted, and those decisions were affirmed on appeal. H&R Block Eastern Enterprises, Inc. v. Swenson, No. 2006AP1210 (Wis. Ct. of App., Distr. 4, Dec. 20, 2007).
The lower court reasoned that two-year limitations were more than H&R Block needed, and with the potential extension, the covenants were plainly invalid. The appellate court assumed “without deciding that the two-year period is reasonable.” Although a Wisconsin employer has a legitimate “interest in protecting its stock of customers” who have been dealing with a particular employee who departs, the State has a “strong public policy against the enforcement of unreasonable trade restraints on employees.” The appellate court concluded that the H&R Block covenants imposed unreasonable restraints because (a) “a former employee cannot tell from the terms of his or her contract how long the extension will be for particular conduct in violation of the clauses,” and (b) the duration of the restraint is “not a fixed and definite time period but a time period that is contingent upon outcomes the employee cannot predict,” namely a court decision as to whether the conduct is a violation. Under Wisconsin law, if any covenant contains both reasonable and unreasonable restraints, the entire covenant is unenforceable. Therefore, H&R Block’s case was doomed.