July/August 2019 Issue
Also in this issue: ABCs on CBD | Wedding Barn Alcohol Licensing Update: Evers Administration Not Requiring Wedding Barns to Hold Alcohol Licenses | Metadata is a Public Record: What Does This Mean for Municipalities?
Wisconsin Legislature Considers Senate Bill 105 to Exempt Municipalities From Fair Dealership Law
In June 2017, the Wisconsin Supreme Court expanded the Wisconsin Fair Dealership Law (“WFDL”) to apply to municipalities by holding that municipalities fell within the law’s definition of “person”. Benson v. City of Madison, 2017 WI 65 (“Benson”). The decision marked the first time that any court in the country had applied fair dealership law to a local government body. Recently, the Wisconsin legislature introduced Senate Bill 105 (“S.B. 105”), which would overturn the Court’s decision in Benson by amending the definition of “person” under the WFDL to exclude municipalities.
In Benson the Court reviewed the contractual relationship between City of Madison (“City”) and four golf pros to determine whether their relationship was subject to the WFDL. The City contracted with the golf pros to operate and manage four city-owned, public golf courses. Under the agreements between the City and the golf pros, the golf pros managed clubhouse operations at the golf courses by performing tasks such as colleting green fees, hiring attendants, selling concessions, and teaching lessons while the City maintained the physical golf course. The agreements provided that the City would pay each golf pro a base contract payment and the golf pros would receive a percentage of revenue from concessions, merchandise sales, golf instruction, and golf cart and club rentals.
A few months before their contracts were set to expire, the City informed the golf pros that golf operations were not sustainable and asked them to submit new proposals for clubhouse operations for the next contract term. The golf pros submitted proposals; however, the City decided to internalize clubhouse operations and informed the golf pros that it would not be renewing their contracts. Subsequently, the golf pros sued the City alleging that the City violated the WFDL when it failed to renew their contracts. The circuit court held that the relationship between the City and the golf pros was not a dealership under the WFDL and the Court of Appeals affirmed.
In a case of first impression, the Court held that the contractual relationship between the City and the golf pros was a dealership under the WFDL. In relevant part, the WFDL defines a dealership as a “contract or agreement … between 2 or more persons, by which a person is granted the right to sell or distribute goods or services.” Wis. Stat. § 135.02(3)(a). The Court reasoned that a municipality was a “person” as defined by the WFDL because the WFDL’s definition of person included corporations and statutes and court decisions referred to a municipality as a “body corporate” and a “municipal corporation.” Therefore, the Court concluded that a municipality was a corporation subject to the WFDL.
As discussed in Justice Abrahamson’s dissent in Benson, the majority opinion greatly limited a municipality’s ability to contract government services to independent contractors. The decision forced municipalities to review both existing and future contracts to determine whether the contractual relationship was a dealership. If the relationship was a dealership, the WFDL would require the municipality to give 90-day notice and good cause before terminating the contract. Because the WFDL does not consider insufficient capital to be good cause, the WFDL would force a municipality with inadequate financial resources to be bound to a contract or face a lawsuit for violating the WFDL if it terminated the contract. With this reality, municipalities had to weigh the costs of being subject to the WFDL against the expense of providing certain municipal services. Rather than be subject to the WFDL, the Court’s decision forced some municipalities to decide not to contract out certain municipal services even though third-party operation would be more efficient than municipal operation and, in some cases, may have caused municipalities to decide not to provide certain municipal services.
Earlier this year, the Wisconsin legislature introduced S.B. 105, which would amend the WFDL’s definition of “person” to exclude “a unit or instrumentality of the federal government, the state, a local government.” Co-sponsors from both the Senate and Assembly introduced this bill. The Senate passed S.B. 105 on June 5, 2019, and the Assembly received it on the same day. If the legislature passes S.B. 105, municipalities will be exempt from the WFDL and will not have to worry about the ramifications of the WFDL when entering into third-party contracts for municipal services.
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