Genex Cooperative Inc v. Contreras et al

Filing 158

ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT granting in part and denying in part 61 Motion for Partial Summary Judgment; granting 62 Motion for Partial Summary Judgment; granting 64 Motion for Partial Summary Judgment; granting 66 Motion for Summary Judgment; granting 68 Motion for Summary Judgment; granting in part and denying in part 108 Motion for Summary Judgment Signed by Judge Stanley A Bastian. (VR, Courtroom Deputy)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF WASHINGTON

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8 GENEX COOPERATIVE, INC.,
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Plaintiff,
v.

11 JORGE T. CONTRERAS, et al.,
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NO. 2:13-cv-03008-SAB
ORDER RE CROSS MOTIONS
FOR SUMMARY JUDGMENT

Defendants.

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On December 12, 2012, Defendants Jorge T. Contreras, Daniel R. Senn,

16 Erasmo J. Verduzco, and Robert H. VanderWeerd, inseminated cows at several
17 dairy farms on behalf of their employer, Genex Cooperative, Inc. (“Genex”). The
18 very next day, Defendants inseminated cows at the same dairy farms—but this
19 time on behalf of CRV USA (“CRV”), a Genex rival. Jilted by its former
20 employees and spurned by its customers, Genex filed suit in this Court to enforce
21 non-competition agreements against three of the defendants, employee non22 solicitation covenants against two of the defendants, and charged all defendants
23 with tortious interference of contractual relations. Defendants counterclaimed
24 alleging several violations of Washington State wage and hour laws. Presently,
25 this Court addresses Plaintiff’s Motion for Partial Summary Judgment, ECF Nos.
26 61, 108; Defendant Contreras’ Motion for Partial Summary Judgment, ECF No.
27 62; Defendant Senn’s Motion for Partial Summary Judgment, ECF No. 64;
28 Defendant Verduzco’s Motion for Summary Judgment, ECF No. 66; and
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 1

1 Defendant VanderWeerd’s Motion for Summary Judgment. ECF No. 68. The case
2 is before this Court on diversity jurisdiction grounds. 28 U.S.C. § 1332. The
3 motions were heard without oral argument.
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FACTS

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Dairy cows provide increased milk production for a period of time after

6 giving birth or calving. Because of this increased production, farmers seek to
7 maximize and control the number of gestating cows at any given time. A dairy
8 cow is in heat or estrus for a short period of time—typically under a day—
9 resulting in a narrow window of optimal time to impregnate the cow. Due to the
10 limitations of bovine estrus, many farms implement an artificial insemination
11 (“A.I.”) program. Whether done in-house or through an A.I. provider, the A.I.
12 program consists of daily monitoring of herds to determine which cows are in
13 estrus, selecting strains of bull semen, providing “arm service” (physically
14 inseminating the cow), and occasionally providing injections to prompt estrus.
15 Nationwide, approximately thirty-five percent of dairy farms use an A.I. provider.
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In the Sunnyside, Washington area, approximately eighty percent of dairy

17 farms utilize A.I. providers, making it a “technician-dominant” area. Wisconsin18 based Genex is among one of the six largest bovine A.I. providers in the country.
19 Genex entered the Sunnyside market in the early 1990’s and began using a team of
20 Breeding Program Specialists (“BPSs”) to service its accounts. The Sunnyside
21 area was serviced by a team of BPSs that operated as a unit. Each month, the BPS
22 team internally coordinated schedules to determine when a dairy appointment
23 would require multiple BPSs and to coordinate relief work (when a team-member
24 would service another BPS’s accounts to provide the BPS with a day off).
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A Genex BPS team is paid as a unit with each member receiving a

26 percentage of the team’s pool of commissionable dollars based on their
27 contributions. The pool of commissionable dollars is made up of sales
28 commissions and service commissions. Prior to 2011, the sales commission was
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 2

1 calculated by taking total sales income, subtracting the “base price” for the semen
2 sold and multiplying by twenty-percent. The “base price” is monies Genex keeps
3 from semen sales for its costs but do not necessarily correlate with actual costs.
4 The sales commissionable dollars are added to service commissionable dollars,
5 which, prior to 2011, were calculated at eighty-percent of service income. From
6 the total commissionable dollars pool, expenses for total team mileage are
7 deducted and the remainder is split among members of the team in relation to his
8 number of cows serviced and sales earned. Lastly, each member is individually
9 reimbursed his portion of mileage expenses that were previously deducted. In
10 October 2011, Genex announced that it was altering the compensation system for
11 BPSs. The commission from services dropped from eighty-percent of income to
12 thirty-seven percent, and the commission from sales rose from twenty-percent to
13 thirty-seven percent. The change in commission rates was allegedly to incentivize
14 the BPSs to sell higher grade semen and to better align the interests of Genex and
15 BPSs. After receiving negative feedback from the BPSs, Genex decided to
16 transition the Sunnyside team’s commission rates—beginning 2012 at forty-six
17 percent, finishing the year at forty-four percent, and was set for forty-two percent
18 for 2013. The compensation changes were made by Genex unilaterally.
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Daniel Senn joined Genex’s Sunnyside BPS team in 1999. Two years later,

20 Robert VanderWeerd joined the team. Jorge Contreras was added to the
21 Sunnyside team in 2006. Erasmo Verduzco had been a team-member from 2008
22 until February 2011, and rejoined the team in December 2011. As a condition of
23 their employment with Genex, Senn, Contreras, and Verduzco each signed
24 differing agreements containing non-competition covenants. Contreras and
25 Verduzco also signed employee non-solicitation covenants. VanderWeerd
26 reportedly refused to sign any restrictive covenants.
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By late 2012, all four defendants were unhappy with Genex. Defendants

28 allege their pay fluctuated, unexplained deductions were taken from their pay, they
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 3

1 did not have any, or enough, days off, and that they were dissatisfied with the new
2 commission rates. According to the defendants, their work-load had increased in
3 the fall of 2012 when two additional team members left Genex for other A.I. firms.
4 Defendants report working seven-day weeks nearly every week and it upset the
5 team that Genex did not promptly hire replacements for the departed team6 members. Sometime in mid-to-late 2012, Senn and VanderWeerd met with
7 representatives from CRV, another A.I. company. The CRV representatives were
8 former members of Genex’s management team and had previously worked with
9 the defendants. By early December 2012, talks between VanderWeerd, Senn and
10 CRV had advanced. Melissa Leatherman, a CRV employee and former account
11 manager for Genex, and Senn began approaching current Genex customers about
12 switching to CRV. Senn stated that Alan McNaughton, then a regional sales
13 manager at Genex, was also present at some of these meetings.
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In the days preceding December 12, 2012, Senn and VanderWeerd informed

15 Contreras and Verduzco of the opportunity with CRV. The parties dispute whether
16 CRV would have hired only part of the Genex Sunnyside BPS team, or if it
17 required the full team. On December 12, Defendants met with CRV
18 representatives, including Jim Bayne (another former Genex manager) and
19 Leatherman, at a hotel in Sunnyside. Defendants agreed on employment terms
20 with CRV, signed employment paperwork, and signed identical resignation letters
21 that were submitted by mail to Genex. The next day, Defendants serviced the same
22 farms they had previously been serving for Genex but with CRV semen. Nearly all
23 of Genex’s Sunnyside area customers switched to CRV with the defendants, none
24 remained with Genex. Since December 2012, Genex has had no BPS and has only
25 made nominal retail sales of bovine semen in the area.
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ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 4

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MOTION STANDARD
Summary judgment is appropriate if the “pleadings, depositions, answers to

3 interrogatories, and admissions on file, together with the affidavits, if any, show
4 that there is no genuine issue as to any material fact and that the moving party is
5 entitled to judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317,
6 323 (1986) (citing Fed. R. Civ. P. 56(c)). There is no genuine issue for trial unless
7 there is sufficient evidence favoring the nonmoving party for a jury to return a
8 verdict in that party’s favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250
9 (1986). The moving party has the burden of showing the absence of a genuine
10 issue of fact for trial. Celotex 477 U.S. at 325.
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In addition to showing that there are no questions of material fact, the

12 moving party must show that it is entitled to judgment as a matter of law. Smith v.
13 Univ. of Wash. Law Sch., 233 F.3d 1188, 1193 (9th Cir. 2000). The moving party
14 is entitled to judgment as a matter of law if the non-moving party has failed to
15 make a sufficient showing on an essential element of a claim on which the non16 moving party has the burden of proof. Celotex, 477 U.S. at 323. The non-moving
17 party cannot rely on conclusory allegations alone to create an issue of material
18 fact. Hansen v. United States, 7 F.3d 137, 138 (9th Cir. 1993).
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When considering a motion for summary judgment, a court may neither

20 weigh the evidence nor assess credibility; instead, “[t]he evidence of the non21 movant is to be believed, and all justifiable inferences are to be drawn in his
22 favor.” Anderson, 477 U.S. at 255.
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ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 5

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ANALYSIS

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GENEX’S MOTION FOR PARTIAL SUMMARY JUDGMENT

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Genex moves for summary judgment on three issues: (1) the enforceability

4 of the restrictive covenants, including the non-compete and employee non5 solicitation obligations of Contreras, Senn, and Verduzco; (2) breach of the non6 compete agreements by Contreras, Senn and Verduzco; and (3) dismissal of
7 Defendants’ affirmative defenses and counterclaims.
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1. Enforceability of Restrictive Covenants
Genex moves for summary judgment declaring the defendants’ restrictive

10 covenants are enforceable. Employment restrictive covenants are valid only if they
11 are reasonably necessary to protect an employer’s business or goodwill.
12 Restatement (Second) of Contracts § 188 (1981). The test to determine the validity
13 of restrictive covenants in employment contracts is one of reasonableness,
14 considering “(1) whether restraint is necessary for the protection of the business or
15 goodwill of the employer, (2) whether it imposes upon the employee any greater
16 restraint than is reasonably necessary to secure the employer’s business or
17 goodwill, and (3) whether the degree of injury to the public is such loss of the
18 service and skill of the employee as to warrant nonenforcement of the covenant.”
19 Perry v. Moran, 109 Wash.2d 691, 698 (1987) (quoting Knight, Vale & Gregory
20 v. McDaniel, 37 Wash.App. 366, 369 (1984)) modified on reconsideration, 111
21 Wash.2d 885 (1989). Except as to disputed facts, the reasonableness of a
22 restrictive covenant is a question of law. Emerick v. Cardiac Study Center, Inc.,
23 P.S., 170 Wash.App. 248, 254 (2012) (citing Alexander & Alexander, Inc. v.
24 Wohlman, 19 Wash.App. 670, 684 (1978). The burden is on the employer to
25 demonstrate the reasonableness of a restrictive covenant. Sheppard v. Blackstock
26 Lumber Co., Inc., 85 Wash.2d 929, 933 (1975); Techworks, LLC v. Willie, 318
27 Wis.2d 488, 498 (Ct.App. 2009).
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ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 6

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a. Verduzco’s Restrictive Covenants
Verduzco’s employment agreement with Genex explicitly provides that the

3 agreement is governed by Wisconsin law. Genex, the drafter of the agreement,
4 however, urges the application of Washington law. A district court must apply the
5 choice-of-law rules of the state in which it sits when hearing a case based on
6 diversity jurisdiction. Abogados v. AT & T, Inc., 223 F.3d 932, 934 (9th Cir.
7 2000). Washington has adopted the Restatement (Second) Conflict of Laws §§
8 187-88 (1971). In relevant part, the Restatement provides an explicit choice of law
9 provision will govern unless “application of the law of the chosen state would be
10 contrary to a fundamental policy of a state which has a materially greater interest
11 than the chosen state in the determination of the particular issue . . . ” Id. at §
12 187(2)(b).
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Genex argues that Washington has a fundamental public policy contrary to

14 Wisconsin law—namely, that Washington courts may reform unreasonable
15 restrictive covenants whereas Wisconsin adopts an “all-or-nothing” rule. Genex,
16 however, does not point to any statute or explicit policy statement that declares
17 Washington has a fundamental policy necessitating the reformation of
18 unreasonable covenants. Instead, Genex recites an explanation of the test
19 Washington courts apply to determine the reasonability of restrictive covenants.
20 Wood v. May, 73 Wash.2d 307, 310 (1968) (en banc). Washington courts have
21 exercised their equitable powers to reform some otherwise unenforceable
22 covenants but this is more akin to a “general rule of contract law” than to a
23 fundamental public policy. See Restatement (Second) Conflict of Laws § 187, cmt.
24 g. Genex’s suggestion that fairness and efficiency dictate that Verduzco’s
25 agreements be governed by Washington law is uncompelling and affords no
26 justification allowing it to ignore its own explicit choice of law provision. Because
27 application of Wisconsin law would not be contrary to a fundamental policy of
28 Washington, Wisconsin law applies to Verduzco’s agreement.
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 7

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Verduzco’s agreement contains two separate restrictive covenants: a non-

2 compete covenant, and an employee non-solicitation covenant. In relevant part the
3 covenants state:
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1.1 Employee . . . shall not, during the term of his/her employment . . .
for a period of 18 months thereafter, directly or indirectly . . . (b)
induce or attempt to induce any employee of the Company to
terminate his/her employment relationship with the Company . . . or
induce or attempt to induce any employee of the Company to breach
any agreement with the Company . . .

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3. Restricted Competition During the term of Employee’s
employment . . . and for 18 months following the date of termination .
. . Employee will not attempt to divert any Company business by
soliciting, contacting or communicating with “Employee Customers.”
This provision shall apply regardless of the reason for termination . . .
“Employee Customer” shall mean any customer having had a
“discussion” with Employee concerning the possibility of doing new
or more business with the Company during the eighteen (18) months
preceding Employee’s termination of employment. “Discussion” shall
refer to contact between Employee and a customer by either (a) direct
contact with Employee in telephone conversations, in correspondence
or e-mail correspondence, or face-to-face meetings.

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Verduzco’s non-compete covenant prohibits him from soliciting or

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15 contacting any dairy farm which he had sought either new or increased business
16 from in the last eighteen months. These “employee customers” would include any
17 farms which Verduzco may have sought business from but which refused to do
18 business with Genex for any reason. Such a non-compete agreement is
19 unenforceable under Wisconsin law. Prohibiting an employee from soliciting any
20 customer the employee has tried but failed to do business with for the former21 employer is a violation of Wis. Stat. § 103.465. JT Packard & Assocs., Inc. v.
22 Smith, 429 F.Supp.2d 1052, 1056 (W.D.Wis. 2005). Therefore, Verduzco’s non23 competition covenant is unenforceable as a matter of law.
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Verduzco’s employee non-solicitation agreement prohibits him from
25 “induc[ing] or attempt[ing] to induce any employee of the Company to terminate
26 his/her employment relationship with the Company . . . or induc[ing] or
27 attempt[ing] to induce any employee of the Company to breach any agreement
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ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 8

1 with the Company.” Genex does not present any developed arguments as to the
2 validity of the employee non-solicitation agreement under either Wisconsin or
3 Washington law.
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In Heyde Cos., Inc., v. Dove Healthcare, LLC, the Supreme Court of

5 Wisconsin found a “no-hire” provision between two companies invalid under Wis.
6 Stat. § 103.465 as a “harsh and oppressive” restriction on the rights of an
7 employee. 258 Wis.2d 28, 41 (2002). That Court stated that “[a]n employer cannot
8 indirectly [through no-hire agreements with other employers] restrict employees in
9 a way that it cannot do directly under § 103.465.” Id. Although one federal district
10 court hearing a motion to dismiss did not recognize that Heyde applied to an
11 employee’s employee non-solicit clause, it is clear from its language that the Court
12 presumed such a restriction was invalid. Compare id., with Share Corp. v. Momar
13 Inc., 2011 WL 284273 *5 (E.D.Wis. 2011). Accordingly, Verduzco’s employee
14 non-solicitation clause is unenforceable as a matter of law.
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As written, Verduzco’s non-compete covenant and his employee non-solicit

16 covenant are invalid under Wisconsin law. Because Wis. Stat. § 103.465 provides
17 for an “all-or-nothing” reading of restrictive covenants, neither of Verduzco’s
18 restraints can be enforced in any manner.
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b. Senn’s Restrictive Covenant
Senn’s Technician Agreement contains a choice of law provision selecting

21 New York law as governing the agreement. The parties, however, agree there is no
22 conflict between Washington and New York law and agree that Washington law
23 applies to Senn’s agreement.
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Paragraph four of Senn’s agreement states in relevant part:

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[T]hat, while he/she is so employed and for a period of 18 months
after termination of his/her employment for any reason whatsoever,
he/she will not, directly or indirectly, either as an employee of an
organization, corporate or otherwise, or of any individual or as an
independent contractor, divulge trade secrets, engage in either the
artificial insemination of cattle or the sale of semen in the area in
which he/she has been employed and rendered service.

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ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 9

1 Senn’s agreement is not limited to customers he serviced with Genex but prohibits
2 him from performing artificial insemination or the sale of semen in the “area in
3 which [he] [w]as employed and rendered service.” Both parties describe the area at
4 issue as the Sunnyside area or region.
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The burden is on Genex to establish the reasonableness of the covenants.

6 Sheppard, 85 Wash.2d at 933. Genex cites just one Washington case in its effort to
7 justify the geographical scope of Senn’s non-compete clause. Genex offers
8 Alexander & Alexander v. Wohlman as evidence of a Washington court upholding
9 the “greater Seattle area” as a reasonable and enforceable geographical restriction.
10 19 Wash.App. 670. This, however, is a misreading of Wohlman. The restrictive
11 covenants in Wohlman prohibited an insurance broker from engaging in that
12 industry within 100 miles of the company office, and from soliciting or serving
13 any of the company’s former customers. 19 Wash.App. at 675. The appellate court
14 found “the covenant was unreasonable in its geographic scope” and limited the
15 application of the covenant only to the “solicitation and diversion” of any former
16 customer in the Seattle area. Id. at 686-89 (emphases added). The court considered
17 the hardship to the employee and refrained from prohibiting him from practicing
18 his profession in the region and only limited the customers he could pursue.
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Similarly, the Supreme Court of Washington has suggested covenants may

20 need to be limited to soliciting or serving former clients. See Wood, 73 Wash.2d at
21 312; Columbia Coll. of Music v. Tunberg, 64 Wash. 19, 22 (1911). Indeed, Genex
22 does not assert any additional protectable interests that are served by prohibiting
23 Senn from inseminating cows in the Sunnyside area at farms that were not
24 previously serviced by Genex. Accordingly, Senn’s restrictive covenant is
25 unreasonable because it goes beyond what is necessary for the protection of
26 Genex’s business or goodwill.
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This Court has the equitable power to modify and narrow an unreasonable

28 covenant in order to enforce its basic purpose. Perry, 109 Wash.2d at 703. The
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 10

1 specific facts and circumstances of the case dictate the reasonableness of any
2 restrictions. Wood, 73 Wash.2d at 312. This Court declines to exercise its power to
3 enforce any part of Senn’s restrictive covenant because it would result in an
4 injustice to Senn. See id. at 313 (describing the ability to enforce “if possible
5 without injury to the public and without injustice to the parties.”).
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Reformation of this covenant is inappropriate because Genex has failed to

7 meet its burden to show that the equities were in its favor. See Sheppard, 85
8 Wash.2d at 934 (“The party seeking to enforce a restraint . . . must prove the
9 equities are in his or her favor.”). As presented, it is impossible to ascertain the
10 true essential purpose of the restrictive covenant. Genex drafted the agreement and
11 had the opportunity to tailor the non-compete covenant to its specific needs. In its
12 briefs, Genex asserts the purpose of the non-compete covenant was to retain its
13 customers—a protectable interest under Washington law. Yet, of the four
14 Sunnyside team-members, only one signed a non-compete clause limited to Genex
15 customers. Verduzco’s agreement applied to prospective customers, Senn’s
16 applied to all cows in the Sunnyside region, and VanderWeerd did not sign a non17 compete agreement at all. Thus, it appears Genex actually used restrictive
18 covenants as either a method to eliminate legitimate competition, or to strong-arm
19 its employees to accept ever-dwindling wages and restrict their freedom to work.
20 Genex has failed to demonstrate that the equities are in its favor and has failed to
21 show how any reformation of the covenant would be reasonable. Therefore,
22 Senn’s non-competition agreement is unenforceable as a matter of law and cannot
23 be reformed.
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c. Contreras’ Restrictive Covenants
Contreras’ agreement does not contain a choice of law provision. In

26 determining the proper choice of law when no provision exists Washington courts
27 look to the state with the “most significant relationship.” Barr v. Interbay Citizens
28 Bank, 96 Wash.2d 692, 697 (1981). Contreras lived in Washington, signed the
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 11

1 agreement in Washington, and worked almost exclusively in Washington.
2 Accordingly, Washington law governs Contreras’ agreement with Genex.
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Contreras’ agreement stated in relevant part:

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[T]hat during the one (1) year following his/her termination of
employment with the cooperative, he/she will not contact any
customer of Genex for the purpose or effect of causing such customer
to diminish its business with the cooperative or do business with a
competitor of the cooperative. For purposes of this Agreement,
customer means any individual or entity for whom/which Genex
provided services and with whom/which the Employee had contact on
behalf of Genex during the 18 months preceding termination of
Employee’s employment.

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9 The agreement also contained a prohibition from “directly or indirectly
10 encourag[ing] any Genex employee to terminate his/her employment with Genex
11 or solicit[ing] such an individual for employment outside Genex.”
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Because Washington law disfavors restraints on trade, courts “should

13 carefully examine covenants not to compete, even when protection of a legitimate
14 business interest is demonstrated.” Knight, Vale & Gregory, 37 Wash.App. at 370;
15 see also RCW § 19.86.030.
16

As to Contreras’ employee non-solicitation clause, Genex again fails to

17 meet its burden to demonstrate the reasonability of the covenant. See Sheppard, 85
18 Wash.2d. at 933. Genex does not identify any protectable interests that the
19 covenant was contemplated to safeguard. Although Genex does not argue for the
20 reasonableness of the covenant, it does offer an interpretation of the clause. Genex
21 asserts that Contreras was prohibited from “inspir[ing]” coworkers “with [the]
22 courage, spirit, or hope” to leave their employment with Genex. The parties agree
23 that Contreras “did not solicit or recruit the other Defendants for employment with
24 CRV.” In other words, Genex argues that Contreras breached the employee non25 solicit covenant because his decision to terminate his at-will employment may
26 have inspired the other defendants with the courage to quit as well. This argument
27 is not supported by either the facts or the law.
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ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 12

1

The Court also refuses to enforce the non-competition agreement signed by

2 Contreras. The reasonableness of a covenant is not measured only by its terms.
3 Instead, “the facts and circumstances of each case must control.” Sheppard, 85
4 Wash.2d at 933. Here, the facts and circumstances indicate Contreras’ non5 competition covenant is unreasonable.
6

Contreras—who cannot read or write in English—was a low-level

7 agricultural worker with an at-will employment relationship with Genex.
8 Contreras presents an affirmative defense that his restrictive covenants lacked
9 consideration. Genex, meanwhile, contradictorily asserts that the restrictive
10 covenants were signed in “consideration for Defendants’ at-will employment,” and
11 that the covenants were independent from Genex’s obligations to pay Defendants
12 in accordance with the employment agreement and Washington wage laws.
13 Whether non-compete agreements can ever be enforceable against at-will
14 employees, without providing specific consideration such as a promise for future
15 employment or training, is an open question in Washington. See Schneller v.
16 Hayes, 176 Wash. 115, 118-21 (1934). Indeed, the Supreme Court of Washington
17 has “never held that continued employment alone is sufficient consideration to
18 uphold a non-compete agreement.” Labriola v. Pollard Grp., Inc., 152 Wash.2d
19 828, 845 (2004) (Madsen, J., concurring). At-will employment is merely
20 “continued employment” and does not promise an employee future employment,
21 an analytically distinct form of consideration. Id. at 799-805 (citing Schneller, 176
22 Wash. at 119-21). Thus, for consideration purposes, an at-will employee signing a
23 restrictive covenant at the time he is first hired is indistinguishable from a contract
24 employee signing a restrictive covenant after beginning his employment.
25

Apart from the issue of insufficient consideration, non-compete covenants

26 against at-will employees are far less reasonable than similar clauses for
27 employees with contractual protections. An at-will employee may be terminated
28 by an employer without any cause and then be prohibited from seeking new
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 13

1 employment in his line of work. Or, as in this case, an at-will employee may have
2 his compensation diminished—with the promise of future diminishment—while
3 working more days, and yet have no alternative to seek similar employment
4 elsewhere in the area. Restrictive covenants against employees who may be
5 terminated for any reason—including the employer’s withdrawal from the
6 region—are unreasonable.
7

Contreras’ position as a Breeding Program Specialist, or bovine

8 inseminator, also points toward the unreasonableness of his restrictive covenant.
9 Nationwide, non-compete agreements are enforced against employees with low10 level sales or route service jobs at a lower rate than those restricting professionals.
11 See Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev.
12 625, 661-64 (1960); see generally 41 A.L.R.2d 15. The Supreme Court of
13 Washington has also recognized that restrictive covenants are less reasonable
14 when applied to lesser-skilled or non-professional employees. Sheppard, 85
15 Wash.2d. at 933 (“In many circumstances it might be that an employee with a not
16 unusual skill could not reasonably be restrained from its exercise at all . . . ”). In
17 this case, Genex describes the Defendants’ skills as “not unique or incomparable”
18 and explains that CRV did not hire them for their “unique skills.” Contreras was
19 an at-will employee who did not have unique or professional skills, further
20 demonstrating Genex’s failure to meet its burden to establish reasonableness of the
21 covenant. Therefore, Contreras’ non-competition covenant is unenforceable as a
22 matter of law.
23

Genex has failed to meet its burden to show that the restrictive covenants

24 contained in agreements signed by Verduzco, Senn, and Contreras are reasonable
25 as written. Additionally, Genex does has not met its burden to demonstrate how
26 Senn’s or Contreras’ covenants could be reformed in a manner that achieves their
27 basic purpose without resulting in an injustice. Therefore, Genex’s motion for
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ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 14

1 summary judgment as to the enforceability of the restrictive covenants is denied as
2 moot.
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2. Breach of the Non-Competition Covenants
Genex also moves for summary judgment that Verduzco, Senn, and

5 Contreras each breached their respective non-competition covenants. Because the
6 Court finds that none of the non-compete covenants are enforceable, Genex’s
7 motion for summary judgment as to breach of the covenants is denied.
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3. Defendants’ Affirmative Defenses and Counterclaims
Lastly, Genex moves for summary judgment to dismiss the defendants’

10 affirmative defenses and counterclaims. The affirmative defenses include:
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(1) the Contreras, Senn and Verduzco Agreements are unreasonable
restraints of trade which are unenforceable as a matter of law;
(2) Genex has failed to mitigate its damages, if any;
(3) Genex breached state wage laws and material aspects or provisions of its
verbal or implied contracts with Defendants, thereby relieving
Defendants of their obligations to abide by the non-competition
agreements;
(4) Genex’s claims are barred by the doctrine of unclean hands
(5) Defendants’ Agreements were not supported by valid consideration
(6) Genex has failed to state a claim upon which relief may be granted
(VanderWeerd only)

17 The Defendants also state four counterclaims against Genex:
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20
21
22
23
24
25
26
27
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(I)
breach of employment agreement
(II) violation of Washington wage laws—failure to pay wages owed
(III) violation of Washington wage laws—failure to provide meal and
rest periods
(IV) violation of Washington wage laws—unauthorized deductions
from wages
Specifically, Genex is seeking partial summary judgment on whether Genex
violated Washington wage and hour laws (counterclaims II-IV) and whether
violations of these laws would preclude enforcement of the restrictive covenants
(counterclaim I/affirmative defense 3).
a. Applicability of Washington Wage and Hour Laws
Defendants allege Genex violated three areas of wage and hour laws,
including the failure to pay wages owed, failure to provide meal and rest periods,

ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 15

1 and taking unauthorized deductions from wages. In their initial Answer and
2 Counterclaims, the Defendants cited to WAC § 296-126-023 and RCW § 49.46 et
3 seq. The cited provisions do not apply to agricultural workers, and Defendants
4 sought to substitute the correct provisions, WAC §§ 296-131-010, -015, -020, in
5 later pleadings. Genex insists this miscue is “highly prejudicial” and Defendants
6 should not be allowed to make the counterclaim based upon the applicable
7 regulations. Pleadings, however, need only “state a claim” and put the opponent
8 on “‘fair notice’ of the claim and its basis.” See Alvarez v. Hill, 518 F.3d 1152,
9 1157 (9th Cir. 2008); Sagano v. Tenorio, 384 F.3d 731, 736 (9th Cir. 2004).
10 Although this error could easily have been caught by Defendants with a cursory
11 reading of the provisions originally cited, under the federal practice of notice
12 pleading, Defendants are entitled to their affirmative defenses and counterclaims
13 based upon §§ 296-131-010, -015, -020. In this case, not only did Defendants put
14 Genex on notice of the factual basis for their claims, but in one instance even cited
15 to a subsection that is word-for-word identical to the rule they should have cited.
16 Thus, Genex was clearly on notice of the claims against it despite Defendants’
17 initial failure to cite to the appropriate regulations.
18

Defendants allege Genex violated WAC § 296-131-010 which requires

19 employers pay “all wages owed to an employee on an established regular pay
20 day.” Defendants claim that Genex frequently did not pay all commissions owed
21 to the team and also claim Genex promised the Defendants would “receive the
22 same level of pay” under its new compensation system as they did under the old
23 system. Genex disputes both assertions. Taking the facts in the light most
24 favorable to the non-movant, the defendants, a reasonable jury could find Genex
25 made the representation that pay would remain level and then failed to pay all
26 wages owed to the defendants. Therefore, Genex’s motion for summary judgment
27 to dismiss the counterclaim based on failure to pay all wages owed is denied.
28 //
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 16

Defendants also counterclaim alleging Genex failed to provide them with

1

2 meal and rest periods in accordance with state law. Genex argues Defendants were
3 outside salesmen exempted from the requirements, “nobody has ever even heard of
4 A.I. companies giving their technicians meal or rest breaks,” and that defendants
5 waived their breaks by not taking them on their own initiative. Although RCW §
6 49.46.010 contains an exception for outside salesmen, WAC § 296-131-020, the
7 agricultural worker counterpart does not have such an exception. Additionally, the
8 non-agricultural worker version of the rule contains a provision disposing of the
9 rest period requirement when the “nature of the work allows employees to take
10 intermittent rest periods” while the agricultural worker version contains no such
11 exception. Compare WAC § 296-126-092(5), with § 296-131-020. Thus, Genex’s
12 argument that Defendants were responsible for setting their own breaks due to the
13 nature of a BPS’s flexible schedule is uncompelling. Lastly, as a corporation doing
14 business in the state of Washington, Genex is obligated to follow Washington law
15 and is not absolved of that obligation even if it perceives other A.I. providers as
16 also violating state law. Because Washington wage and hour laws apply, Genex’s
17 motion for summary judgment for the dismissal of Defendants’ counterclaims
18 related to meal and rest periods is denied.
Next, Defendants counterclaim alleging that Genex took unauthorized and

19

20 unexplained deductions from their paychecks. WAC § 296-131-015 requires that
21 pay statements identify “all deductions and the purpose of each deduction for the
22 respective pay period.” Both VanderWeerd and Senn testified that deductions
23 labeled “miscellaneous” were taken from their pay on several occasions. Contreras
1
24 and Verduzco did not testify to any unexplained deductions. At least some of

25 VanderWeerd’s and Senn’s miscellaneous deductions have been explained as
26 paying for “map work,” or A.I. breeding analysis to pair a cow with a particular
27 strain of bull semen. Whether or not VanderWeerd and Senn were “okay” with the
28

1

Verduzco experienced one erroneous deduction for missing inventory. He was later reimbursed for the deduction.

ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 17

1 deductions after that explanation is disputed. Viewing these facts in the light most
2 favorable to the defendants, VanderWeerd and Senn have presented disputed facts
3 sufficient to survive summary judgment on this counterclaim. Verduzco and
4 Contreras, however, have failed to present any evidence of unexplained
5 deductions. Therefore, Genex’s motion is granted as to Verduzco’s and Contreras’
6 counterclaim for unaccounted for deductions but denied as to Senn and
7 VanderWeerd.
b. Whether Alleged Violations of State Wage Laws Precludes
8
Enforcement of the Restrictive Covenants
9

Genex moves for summary judgment declaring any alleged violations of

10 state wage laws would not preclude the enforceability of Defendants’ restrictive
11 covenants. This issue need not be resolved because the Court has previously
12 determined the restrictive covenants are not legally enforceable, however, even if
13 the covenants were enforceable, this motion would be denied.
14

Although Genex argues the restrictive covenants were independent from its

15 obligations to pay the defendants agreed upon wages and to follow applicable state
16 labor laws, these obligations were implicit (and explicit to varying degrees) in the
17 employment agreements. Defendants argue that Genex’s failure to pay all
18 compensation due, the unilateral change in compensation plan, and violation of
19 state employment laws amount to a material breach of the employment contract. A
20 material breach is one that “substantially defeats the purpose of the contract.” Park
21 Avenue Condominium Owners Ass’n v. Buchan Developments, L.L.C., 117
22 Wash.App. 369, 383 (2003). Being paid an agreed upon salary is clearly a
23 substantial purpose of an employment contract. An unpaid installment or failure to
24 make a payment owed could constitute a material breach depending on its severity.
25

Whether a breach is material is a fact-intensive issue. Here, Genex argues

26 that any wage or hour violations it committed were so de minimis to be immaterial
27 as a matter of law. Defendants allege the violations, particularly in the form of
28 wage uncertainty and overwork, were substantial—so substantial that they were
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 18

1 willing to risk being sued in order to leave Genex. Because both the existence and
2 extent of any breach is disputed, it remains unclear if any breach was material.
3 Accordingly, Genex’s motion for summary judgment for dismissal of Defendants’
4 affirmative defense of material breach would be denied if not moot.
DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT

5

1. Contreras’ Employee Non-Solicitation Covenant

6

Contreras moves for summary judgment declaring he did not breach the

7

8 employee non-solicitation covenant found in his agreement. Because the Court
9 finds that this clause is unenforceable as a matter of law, Contreras’ motion for
10 summary judgment pertaining to breach is granted.
11

2. Verduzco’s Non-Competition and Employee Non-Solicitation
Covenants

12
13
14
15

Verduzco moves for summary judgment that his restrictive covenants are
unenforceable and that he did not breach the covenants to the extent that they are
enforceable. Because the Court finds neither of Verduzco’s restrictive covenants
are enforceable as a matter of law, his motion for summary judgment is granted.

16

3. Tortious Interference with Contract

17
18
19

Each defendant moves separately for summary judgment on Genex’s claims
for tortious interference with contractual obligations. In Washington, tortious
interference with a contract or business expectancy requires five elements:

20
21
22
23
24

(1) existence of a valid contractual relationship;
(2) defendants had knowledge of that relationship;
(3) an intentional interference inducing or causing a breach or
termination of that relationship;
(4) that defendants interfered for an improper purpose or used
improper means; and
(5) resultant damage.

25 Leingang v. Pierce County Medical Bureau, Inc., 131 Wash.2d 133, 167
26 (1997). Genex’s claims for tortious interference fail as a matter of law
27 because no valid contractual relationships existed to be interfered with.
28 //
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 19

1

Genex’s claim is premised on the theory that each defendant

2 intentionally interfered with each other’s restrictive covenants by
3 encouraging them to leave Genex and take their customers with them.
4 Because this Court finds that all of the restrictive covenants are
5 unenforceable as a matter of law, there remain no valid contractual
6 relationships which could be tortiously interfered with. Therefore, each
7 Defendants’ motion for summary judgment for the dismissal of Genex’s
8 claims for tortious interference of contractual obligations is granted.
9

CONCLUSION

10

In summary, this Court finds the non-competition covenants of

11 Verduzco, Senn, and Contreras are completely unenforceable as a matter of
12 law. Likewise, Verduzco’s and Contreras’ employee non-solicitation
13 covenants are unenforceable as a matter of law. Genex’s claims against all
14 defendants for tortious interference with contractual obligations do not
15 survive Defendants’ summary judgment motions. Lastly, with the exception
16 of Verduzco’s and Contreras’ counterclaims for unaccounted wage
17 deductions, all of Defendants’ counterclaims survive Genex’s motion for
18 summary judgment.
19 //
20 //
21 //
22 //
23 //
24 //
25 //
26 //
27 //
28 //
ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 20

ORDER

1
2

Accordingly, IT IS HEREBY ORDERED:

3

1. Plaintiff’s Motion for Partial Summary Judgment, ECF Nos. 61, 108, is

4 DENIED IN PART and GRANTED IN PART.
5

2. Defendant Contreras’ Motion for Partial Summary Judgment, ECF No.

6 62, is GRANTED.
7

3. Defendant Senn’s Motion for Partial Summary Judgment, ECF No. 64, is

8 GRANTED.
9

4. Defendant Verduzco’s Motion for Summary Judgment, ECF No. 66, is

10 GRANTED.
11

5. Defendant VanderWeerd’s Motion for Summary Judgment. ECF No. 68,

12 is GRANTED.
13

IT IS SO ORDERED. The District Court Executive is hereby directed to

14 file this Order and provide copies to counsel.
15

ENTERED this 3rd day of October, 2014.

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22

Stanley A. Bastian

United States District Judge

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ORDER RE CROSS MOTIONS FOR SUMMARY JUDGMENT~ 21