Noncompete agreements amidst acquisitions and mergers

Nowadays, it’s fairly common that employers have both their new hires and more seasoned staff sign noncompete clauses. For many companies, they see having their employees do this as a way to protect their investment of time and resources in their staff. They also see this as strategic approach. It gives companies some comfort in knowing that their handpicked staff can’t run off and join their many competitors.

A lot of confusion arises, however, when it comes to whether an employee who signs noncompete agreement is still subject to it if, and when, a company is taken over by another. A Pennsylvania judge presiding over a recent case that centered around this precise issue determined that it all depends. This example can provide some guidance as to how judges in other states may handle the issue in the future when called upon to do so.

In a case in which the company that acquires another maintains an identity separate from its new acquisition, a judge in that matter, argued that it would be possible for a non-compete to still remain in effect despite the acquisition. However, in the case of a merger, it’s possible that the opposite would be the case.

The rule of law errs heavily on the side of not enforcing restrictive covenants like noncompete clauses. This is especially the case because these types of agreements have been notorious for inhibiting an individual’s ability to make a living.

In a case in which a merger results in the dissolution of the original company the employee worked for, the Pennsylvania judge in this guiding case conceded that the relationship between the employee and the employer is a personal one. Along that vein, if an employee hasn’t signed an agreement with his or her new employer, then the noncompete clause is seen as not being applicable in that respective case.

For employers looking to create an enforceable noncompete agreement, one of the ways they can protect their interests is by specifically spelling out issues of assignment within it. At the same time, any agreement that is signed that fails to address assignment may be all the evidence an employee needs to prove that his or her noncompete is no longer valid.

If you’re facing a contract dispute, then a Melbourne, Florida, civil litigation attorney may be able to provide guidance in your legal matter.

Source: FindLaw, “Non-compete agreements after an acquisition: Are they enforceable?,” accessed June 13, 2017