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 July 18, 2003) (unpublished) (refusing to enforce noncompete where the employee stated in an affidavit that he did not agree to an assignment to a successor company).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.