11.15.2012

Employee Noncompete Agreements Transfer to the Surviving Company After a Merger

In a recent decision, the Ohio Supreme Court reconsidered and reversed its earlier ruling addressing whether or not a post-merger successor company “stands in the shoes” of the original company with respect to enforcing employee noncompete agreements.

In Acordia I (Acordia of Ohio, L.L.C. v. Fishel, Slip Opinion No. 2012-Ohio-2297), the Court held that when two companies merge and one ceases to exist, the surviving company does not “stand in the shoes” of the disappearing company with regard to enforcing noncompete agreements between the acquired company and its employees unless the agreements included specific language extending the employees’ obligations not to compete not only to the original employer, but also its corporate “successors and assigns.”

On reconsideration, the Court explained that its holding in Acordia I was based on a misreading of a 1971 Ohio Supreme Court opinion and, was therefore, erroneous. Therefore, in Acordia II (Acordia of Ohio, L.L.C. v. Fishel, Slip Opinion No. 2012-Ohio-4648), the Court held that a post-merger successor company does “stand in the shoes” of the original contracting company and may enforce employee noncompete agreements even when “successors and assigns” language is omitted. The Court did, however, reinforce the well-established and traditional principles of law that regulate and govern noncompete agreements by emphasizing that employees may still challenge the continued validity of noncompete agreements based on whether the agreements are reasonable and whether the merger created additional obligations or duties so that the agreements should not be enforced on their original terms.

The Court reached the correct result on reconsideration and, in accordance with R.C. 1701.82(A)(3), it is the law in Ohio that all assets and property, including employment contracts and agreements, and every interest in the assets and property of each constituent entity transfer through operation of law to the resulting company post-merger.





Contact: Alexander Kipp
216.820.4204








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