On May 24, 2012, the Ohio Supreme Court decided the case of Accordia of Ohio, LLC v. Fishel, Slip Opinion No. 2012-Ohio-2297, holding that the language of the non-compete agreements at issue dictated that the surviving, successor company could not have them enforced after a corporate merger as though they had stepped into the shoes of the original company. In Accordia, the former employees entered into non-compete agreements by which they agreed to forego competition with the company who hired them for a two-year period following termination of employment with that company. These agreements did not include language that extended the non-compete obligation to other employers, such as the company's successors or assigns.
Accordia then underwent a series of mergers and all of the employees at issue left in 2005 and began employment with a competitor. The former employees used their prior contacts to recruit multiple customer accounts to their new employer. Within six months, 19 customers had transferred $1 million in revenue to the new employer.
Accordia sued the new employer and its former employees alleging they violated their two-year non-compete agreement. Having lost both at the trial court and court of appeals, Accordia argued to the Ohio Supreme Court that, pursuant to Ohio's merger statutes, agreements such as non-competes are assets of the constituent company that transfer automatically by operation of law and the statutory merger to the surviving company and are, therefore, enforceable by the surviving company, according to the agreement's original terms as if the surviving company were a party to the initial agreement. The Ohio Supreme Court rejected this proposition and affirmed the judgment of the court of appeals.
Specifically, the Ohio Supreme Court held that non-compete agreements that are transferred as a matter of law by a merger between companies are enforceable according to their terms. In this case, the Ohio Supreme Court concluded:
Because the agreements made no provision for the continuation of the agreement upon any acquisition of the original company by another company, the agreements are not enforceable by the L.L.C. [Accordia] according to the agreements' original terms past the two-year non-compete period agreed to by the employees and their original employers.
Given that more than two years had passed since the termination of the employees' employment with Accordia, the non-competes were no longer enforceable.
Based on the Ohio Supreme Court's decision in Accordia, it is recommended that if your company relies upon and enforces non-compete agreements, they should be reviewed to ensure a proper assignability clause is included. For those companies that have acquired agreements as part of a merger, they may no longer be enforceable if there is not an assignability clause, and the company should consider requiring a new non-compete agreement be signed by affected employees. An assignability provision is recommended for purposes of ensuring that should your company be merged with another company, the new entity will be able to avail itself of enforceable non-compete agreements.