A new case out of the Ohio Supreme Court demonstrates the importance of companies ensuring that the language of employee noncompete agreements includes all of the key provisions. In Acordia of Ohio v. Fishel, the Ohio Supreme Court held that an earlier corporate merger started the clock ticking on noncompete agreements where the agreements did not include adequate language to extend to other employees, such as successors, mergers or assigns.
Acordia sued four former employees after they left to work for a competitor and succeeded at soliciting away US$1 million in business. The noncompete agreements Acordia sought to enforce referred to “the company” defined by the name of a predecessor company and did not reference any successor company. The court held that when companies merge, while as a matter of law agreements between an acquired company and its employees transfer to the acquiring company, those agreements are enforced against the employees only according to the exact terms of the original agreement. That is, the surviving entity takes the agreement language as is.
In light of the Acordia decision, it is critical that employers (with employees inside and outside Ohio) review and if necessary amend existing noncompete agreements with key employees to make sure the agreements provide for automatic continuation and enforcement by successor employers in the event the company ceases to exist in its current form. The successors and assigns language should also be broad enough to contemplate various forms of business transfers (e.g. asset sale, merger, stock sale, etc.). Further, companies who are acquiring other businesses will want to review the target’s employee noncompete agreements to ensure they contain sufficient language or otherwise should require the execution of new noncompetes as part of the transaction.
For help in reviewing or amending your noncompete agreements or for more information on essential provisions to enforce noncompete agreements generally, please contact your principal Squire Sanders lawyer or one of the individuals listed in this publication.