The Wisconsin Court of Appeals invalidated a noncompete agreement the former general manager of a Kia dealership in Madison signed when he was hired, finding it overbroad and unenforceable.
Noncompete agreements “are pretty common, especially at general manager levels,” according to Kevin Palmersheim, who represents Metro Kia of Madison, the dealership that sued to prevent its ex-general manager from working for competitors.
Because state laws vary, such agreements can be especially tricky for dealer groups operating in more than one state, said Palmersheim, of Middleton, Wis. In Wisconsin, for example, if any provision in a noncompete agreement is deemed unreasonable, the whole agreement is unenforceable. But in nearby Illinois and Minnesota, only the specific unreasonable restrictions can’t be enforced, he said.
Metro Kia of Madison’s challenged agreement purported to prohibit Drake Lallas from engaging “directly or indirectly, personally, as an employee or stockholder in the business of selling or servicing any means of automotive sales or transportation” for one year within 100 miles of the store.
Lallas went to work at the dealership in 2005 and was terminated in 2018 because of “some issues with charge-backs,” he said in court papers. The next month, he became general manager of a Kia store in Janesville, Wis., about 43 miles from Madison. A month after that, he switched jobs again when Russ Darrow Kia in Madison hired him as general manager.
Metro Kia of Madison then sued Lallas for breach of contract, breach of fiduciary duty, theft, misappropriation of trade secrets and related allegations, saying in court papers that Russ Darrow Kia is a major competitor. A lower court judge dismissed the contract claim based on the noncompete agreement and a jury cleared Lallas on the other claims at trial.
The Court of Appeals refused to reinstate the breach-of-contract claim, saying restrictions in noncompete agreements must be “reasonably necessary” to protect employers. In this case, it said, Metro Kia of Madison failed to show the scope of its restrictions on Lallas’ employment met that test. For example, the language of the noncompete agreement would bar Lallas from working as a service technician at an oil change or retail tire store, it said.
Similarly, the court said although some Madison-area customers shop for vehicles anywhere in Wisconsin and out of state, Metro Kia of Madison’s sales records show its customer base was within a 30-mile radius of the store — far less than the agreement’s 100-mile provision. Thus, the 100-mile limit was not reasonably necessary to protect Metro Kia of Madison, it held.
Lallas’ lawyer did not respond to requests to discuss the case.