An often overlooked item for companies is their current employee noncompete agreements. Companies typically use standard wording and forms for years and do not look at updating the language in light of current best practices and changes in the law. It is important that companies review their noncompete agreements periodically – not just the standard template, but those agreements currently in place for their key employees.
A new case out of the Ohio Supreme Court demonstrates the importance of companies ensuring that the language of employee noncompete agreements includes all of the key provisions. In Acordia of Ohio v. Fishel (pdf), the Ohio Supreme Court held that an earlier corporate merger started the clock ticking on noncompete agreements where the agreements did not include adequate language to extend to other employees, such as successors, mergers or assigns.
In light of the Acordia decision, companies should review their existing noncompete agreements with key employees to make sure the agreements provide for enforcement by successor employers in the event the company ceases to exist in its current form or otherwise sells the business to another company. The successors and assigns language must be broad enough to contemplate various forms of transfer (e.g. asset sale, stock sale, etc.) to provide for automatic continuation or survival of the agreement. Further, companies who are acquiring other business will want to review the target’s employee noncompete agreements to ensure they contain sufficient language or otherwise require the execution of new noncompetes as part of the transaction.
For more information on this decision please see our client update.