Transactional lawyers will be smart to take note of the following employment-related decisions that have come out within the past few weeks:

  1. Non-competition Agreement Enforced by Buyer of Assets. An asset purchaser prevailed in enforcing the seller’s non-competition agreements with its key employees because, under Missouri law, the agreements were properly assignable. The 8th Circuit’s decision provides another reminder that asset purchasers should carefully consider state-specific non-competition laws in order to assure that seller’s key employees are subject to desired post-closing restrictive covenants and trade secret protections. Further, purchasers should consider executing new agreements at or soon after closing, in order to prevent post-closing challenges to their business protections. See Symphony Diagnostic Services v. Greenbaum for the 8th Circuit’s decision re Missouri law.
  2. Merger Agreement Propels Litigation After Post-Closing Benefit Reductions. In merger and purchase agreements that include post-closing benefit plan commitments, purchasers should consider including a “Halliburton provision” in order to prevent claims that those commitments have created de facto plan amendments that participants may enforce. In Hunter v. Berkshire-Hathaway, the 5th Circuit applied the reasoning of its 2006 Halliburton decision to a merger agreement executed in 2000, and concluded that pension plan participants could pursue “their claims against Berkshire because Berkshire caused Acme to amend the Pension Plan and 401(k) Plan in direct violation of Section 5.7 of the merger agreement. The court explained:
    The facts here are comparable to those in Halliburton. Acme can make any changes to the ERISA plans, but Berkshire can "not cause the Company [Acme] to . . . (ii) reduce any benefit accruals . . . [or] (iii) reduce the employer contribution. . . ." . . . Additionally, the restrictive provisos here, like the provision in Halliburton, impose no time limit for how long Berkshire is prevented from causing Acme to reduce certain benefits.

    Overall, the Hunter case provides a useful reminder that, in their acquisition agreements, buyers should consider including a Halliburton provision if they are making post-closing commitments to employees of the acquired company. This is the case (due to the Halliburton decision) even if the agreement provides that there are no third party beneficiaries.

  3. WARN Violation Imputed to Buyer after Asset Purchase. Despite an asset purchase agreement’s allocation of WARN liabilities to the seller, a post-closing reduction-in-force triggered WARN liability for the purchaser because (i) after buyer had hired 201 of seller’s employees at the time of the closing, seller terminated the remaining 457 of its 658 employees, and (ii) ) the sale documents indicated that the business was sold as a going concern, rather than as a mere sale of assets. The 8th Circuit found it persuasive that “The APA reflects that Celadon purchased Continental intending to continue Continental's existing trucking business indefinitely.” Relying on WARN regulations applicable to business transactions (see the quoted text below), the court found that the APA provisions evidencing transition of the indicated that the APA transaction was not a mere sale of assets, thereby opening the door for purchaser’s WARN liability because seller had not made employment terminations before the closing. Day v. Celadon Trucking is the case.
    • Note that, for employers in the oil and gas industry, a Texas court recently became the second district court to find that, based on the applicable facts and pleadings, layoffs at multiple oil rigs were not aggregated for WARN purposes. Accordingly, the Texas court dismissed the WARN action through its decision on Meadows v. Latshaw Drilling (N.D. TX, 5/31/2016). See also Voissin v Axxis Drilling (E.D.LA, 10/21/2015) in which a Louisiana district court reached the same conclusion (namely, that each rig was a separate site of employment because, quoting the employer’s position, “the rigs were separate facilities that functioned independently from each other and the office, and each rig had its own employees who reported for duty to wherever the rig was located”).
    • The WARN Act rules that impute seller employment to buyer provide as follows:
    In the case of the sale of part or all of a business, section 2(b)(1) of WARN defines who the “employer” is. The seller is responsible for providing notice of any plant closing or mass layoff which takes place up to and including the effective date (time) of the sale, and the buyer is responsible for providing notice of any plant closing or mass layoff that takes place thereafter.”