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Many contracts, including noncompetition agreements, have
what's called "boilerplate" language,
"ready-made or all-purpose language that will fit in a variety
of documents." Black's Law Dictionary 72 (2d
pocket ed. 2001). One type of boilerplate often contained in a
noncompete is an assignability clause, which might say something
like: "This Agreement is assignable by the Company and inures
to the benefit of the Company, its subsidiaries, affiliated
corporations, successors, and assignees." But what might
happen if that clause is not included in a noncompete?
In Acordia of Ohio, LLC v. Fishel,
decided on May 24, the Ohio Supreme Court ruled that because there
was no such language in the noncompetes in that case, the plaintiff
(Acordia) could not enforce the noncompetes against several
employees who signed the agreements with predecessors of Acordia
(companies that merged to create Acordia). Rather, the periods of
noncompetition specified in the noncompetes began to run as soon as
the predecessor companies ceased to exist, even though the
employees still worked for Acordia, the successor company. The
court reasoned that the employees' employment with the
predecessors "terminated" when those companies ceased to
exist from mergers, and, based on the language in the agreements
which did not extend noncompete rights to successor companies, the
noncompete periods started at that point. (Acordia was able to
enforce the noncompetes from that point until the noncompete
periods expired because, by statute, it assumed the contracts of
its predecessors.) When the employees went from Acordia to work for
a competitor years later, it was too late for Acordia to enforce
the agreements because the noncompete periods had expired. It was
"significant" for the court that the employees'
agreements did "not contain language that extends to other
employers, such as the company's 'successors or
assigns.'" Massachusetts law is similar. See Securitas
Security Services USA, Inc. v. Jenkins, C.A. No. 032950BLS,
2003 WL 21781385 (Mass. Super. July 18, 2003) (unpublished)
(refusing to enforce noncompete where the employee stated in an
affidavit that he did not agree to an assignment to a successor
company).
It is thus important for employers to include assignability
clauses in noncompetes to prevent potential enforceability
problems. If they don't, then employers should consider having
their employees sign new noncompetes (with assignability clauses!)
following a merger or other significant corporate reorganization
(which, as I
wrote earlier, is a step that can have its own problems). As
Acordia shows, sometimes the result in a case can hinge on
rather mundane language.
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