Monday, October 15, 2012

On second thought, go ahead and enforce those noncompetes in mergers

Typically, a decision from the Supreme Court establishes the rule of law going forward on the issue specific to that case. Acordia of Ohio, L.L.C. v. Fishel (10/11/12) [pdf], however, is not your typical case. When the pro-business Ohio Chamber of Commerce and the pro-plaintiff Ohio Employment Lawyers’ Association join together on an issue, something is up.

In Acordia I, decided earlier this year, the Ohio Supreme Court held that if a noncompetition agreement does not provide for its transfer to successor and assigns, the company’s merger with another entity terminates the agreement. That decision, however, was not the end. The losing party filed a motion for reconsideration, supported by a whole bunch of business groups (including the aforementioned Ohio Chamber of Commerce and the Ohio Employment Lawyers’ Association).

Last week, the Supremes issued its decision reversing course:

Employee noncompete agreements transfer by operation of law to the surviving company after merger. The language in Acordia I stating that the L.L.C. could not enforce the employees’ noncompete agreements as if it had stepped into the original contracting company’s shoes or that the agreements must contain “successors and assigns” language in order for the L.L.C. to enforce the agreements was erroneous. We hold that the L.L.C. may enforce the noncompete agreements as if it had stepped into the shoes of the original contracting companies, provided that the noncompete agreements are reasonable under the circumstances of this case.

You can now return to your regularly scheduled noncompetition agreements.