1. Was Verduzco’s noncompete covenant enforceable in the U.S. District Court?

2. Was Senn’s restrictive covenant enforceable by the court?

3. Did Genex meet its burden of proof in seeking to enforce the restrictive covenant against Contreras?

On December 12, 2012, Defendants Contreras, Senn, Verduzco, and VanderWeerd, inseminated cows at several dairy farms in Sunnyside, Washington, on behalf of their employer, Genex Cooperative, Inc. (“Genex”). The very next day, they inseminated cows at the same dairy farms— but this time on behalf of CRV USA (“CRV”), a Genex rival. Genex filed suit to enforce non-competition agreements against three of the defendants. Although the individual contracts varied in terms, Contreras, Senn, and Verduzco contended the agreements were unenforceable. Mr. VanderWeerd had not signed an agreement.

JUDICIAL OPINION

BASTIAN, D. J…. Genex moves for summary judgment declaring the defendants’ restrictive covenants are enforceable. Employment restrictive covenants are valid only if they are reasonably necessary to protect an employer’s business or goodwill. Restatement (Second) of Contracts § 188 (1981). The test to determine the validity of restrictive covenants in employment contracts is one of reasonableness, considering “(1) whether restraint is necessary for the protection of the business or goodwill of the employer, [and] (2) whether it imposes upon the employee any greater restraint than is reasonably necessary to secure the employer’s business or goodwill….”

The burden is on the employer to demonstrate the reasonableness of a restrictive covenant.…

a. Verduzco’s Restrictive Covenants Verduzco’s employment agreement with Genex explicitly provides that the agreement is governed by Wisconsin law. Verduzco’s noncompete covenant prohibits him from soliciting or contacting any dairy farm which he had sought either new or increased business from in the last eighteen months. These “employee customers” would include any farms which Verduzco may have sought business from but which refused to do business with Genex for any reason. Such a noncompete agreement is unenforceable under Wisconsin law. Prohibiting an employee from soliciting any customer the employee has tried but failed to do business with for the former-employer is a violation of Wis. Stat. §103.465. Therefore, Verduzco’s noncompetition covenant is unenforceable as a matter of law.

b. Senn’s Restrictive Covenant Senn’s Technician Agreement contains a choice of law provision selecting New York law as governing the agreement. The parties, however, agree there is no conflict between Washington and New York law and agree that Washington law applies to Senn’s agreement…. Senn’s agreement is not limited to customers he serviced with Genex but prohibits him from performing artificial insemination or the sale of semen in the “area in which [he][w]as employed and rendered service.” Both parties describe the area at issue as the Sunnyside area or region. The burden is on Genex to establish the reasonableness of the covenants…. The Supreme Court of Washington has suggested covenants may need to be limited to soliciting or serving former clients…. Senn’s restrictive covenant is unreasonable because it goes beyond what is necessary for the  protection of Genex’s business or goodwill.

This Court has the equitable power to modify and narrow an unreasonable covenant in order to enforce its basic purpose………………………..