The Ohio Supreme Court recently revisited an important decision for companies involved in merger and acquisition transactions in Ohio. In Acordia of Ohio, L.L.C. v. Fishel (Acordia I), the court decided that successor companies were not permitted to take the place of their predecessors in order to enforce noncompetition agreements between the predecessor and acquired employees. The Acordia I decision was partially based on the fact that the noncompetition agreements at issue did not contain assignment language and narrowly defined the parties as the predecessor company and its employees. (For more on this decision, visit our blog post here.)
After the decision in Acordia I was released, Acordia, the successor company seeking to enforce the noncompetition agreements at issue, filed a motion for reconsideration, which was accepted by the court.
In its recent decision, the Ohio Supreme Court admitted that portions of the opinion in Acordia I were erroneous. The court then reversed those portions of the Acordia I decision and ruled that a successor company can enforce noncompete agreements “as if the resulting company has stepped into the shoes of the absorbed company.” Acordia of Ohio, L.L.C. v. Fishel, Slip Opinion No. 2012-Ohio-4648 (October 11, 2012). Further, the court held that a noncompete’s omission of succession or assignment language did not prevent the successor company from enforcing the noncompete.
The Ohio Supreme Court also clarified that its decision applied only to noncompete agreements and that employees were still permitted to challenge the validity of the agreements. In fact, additional obligations or duties that resulted from the merger or acquisition could render the agreements unreasonable and, thus, unenforceable under Ohio law.
What Does This Mean for Successor Companies?
- Successor companies now have the opportunity to enforce noncompetition agreements between acquired employees and a predecessor company.
- Succession and assignment language is not required to permit a successor company to enforce a noncompete against acquired employees. However, it is recommended that new employee agreements should plan for mergers and acquisitions by including a provision that the noncompetition agreement is between the employee and the present company, including its successors, heirs, and assigns.
- Alongside with company growth or change, all companies should perform a timely and detailed review of employee noncompetition agreements (both acquired employee and new employee agreements) to ensure that they are considered reasonable and enforceable under current Ohio law.