Assignability of Non-Compete Agreements

August 18, 2016

Non-compete agreements have become a staple of the business community, allowing organizations of all shapes and sizes to protect their interests in their employed professionals. Courts are often asked to enforce – or invalidate – these agreements, which require an analysis of the reasonableness of the restrictions (e.g., duration, geographical scope, and type of business).  As a result, most States have developed firm precedent on enforceability.  Determining unilateral assignability – i.e., whether one business can transfer an employee’s non-compete agreement to another business without employee consent – is more unsettled.  To date, some courts say yes, some say no, and some have yet to weigh in.

The debate resurfaced recently in the United States Court of Appeals for the Eighth Circuit, which handles appeals of federal cases in Arkansas, Iowa, Minnesota, Mississippi, Missouri, Nebraska, and the Dakotas.  In Symphony Diagnostic Services No. 1 Inc. v. Greenbaum, which involved Missouri law, the non-compete agreements of x-ray technicians were assigned as part of a stock and asset purchase between businesses.  The lower court invalidated the agreements because the x-ray technicians did not consent to the assignment.  The Eighth Circuit reversed, however, and held that these non-compete agreements – which did not materially change the x-ray technicians’ job or employer qualities – could be assigned without consent and enforced by the successor business.          

How do our local jurisdictions view the assignment of non-compete agreements?  Generally speaking, Ohio courts treat it much like most other contractual disputes – i.e., they seek to uncover the intent of the parties.  Like other jurisdictions, such as Florida and Pennsylvania, Ohio favors assignment of non-compete agreements in which the bound employee has authorized the assignment.  Nevertheless, Ohio courts also apply Ohio merger statutes, which allow the successor to enforce “reasonable” non-compete agreements made prior to a merger. 

Unlike Ohio, Michigan governs non-compete agreements through statutory law. However, the applicable statute is currently silent on this issue of assignability.  Although the Michigan Legislature is considering an amendment to the statute, the amended language only proposes changes to the enforceability of these non-compete agreements, not their assignability.

Like Michigan, many states – and even the federal government – are considering legislative changes to the use of non-compete agreements. As a result, the ability to assign these agreements could change in the future, especially given the Eighth Circuit’s analyses.  In the meantime, Ohio and Michigan employers should review their current non-compete agreements for any assignment language, and seek the advice of counsel before acquiring another business’ non-compete agreements in a merger or asset purchase. 

Co-Authored by:

JASON M. VAN DAM
 Attorney at Law

KYLE JAZWIECKI
Summer Associate and
   Third-Year Law Student
   

 

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