The Ohio Supreme Court recently reversed its prior decision limiting the enforceability of non-compete agreements acquired in mergers and acquisitions. In Acordia of Ohio, L.L.C. v. Fishel (Acordia I), the Supreme Court determined that successor companies were not permitted to take the place of their predecessors in order to enforce noncompete agreements between the predecessor and acquired employees. The noncompete agreements at issue in Acordia I did not contain assignment language and narrowly defined the parties as the predecessor company and its employees. (For more on this decision, see our blog post here.)
Acordia filed a motion for reconsideration, which was accepted by the court. The court reversed its decision, holding that a successor company can enforce noncompete agreements “as if the resulting company has stepped into the shoes of the absorbed company.” Acordia of Ohio, L.L.C. v. Fishel, Slip Opinion No. 2012-Ohio-4648 (October 11, 2012). Further, the court held that a noncompete’s omission of succession or assignment language did not prevent the successor company from enforcing the noncompete.
The Ohio Supreme Court also clarified that its decision applied only to noncompete agreements and that employees still were permitted to challenge the validity of the agreements. In fact, additional obligations or duties that resulted from the merger or acquisition could render the agreements unreasonable and, thus, unenforceable under Ohio law.
What Does This Mean for Successor Companies?
1. Successor companies may stand in the shoes of the predecessor companies to enforce noncompete agreements between acquired employees and the predecessor company.
2. Succession and assignment language is not required to permit a successor company to enforce a noncompete against acquired employees. However, it is recommended that new employee agreements should plan for mergers and acquisitions by including a provision that the noncompete agreement is between the employee and the present company, including its successors, heirs, and assigns.
3. Alongside with company growth or change, all companies should perform a timely and detailed review of employee noncompete agreements (both acquired employee and new employee agreements) to ensure that they are considered reasonable and enforceable under current Ohio law.