Today, the Ohio Supreme Court reversed itself. The Court has vacated its earlier opinion in Acordia of Ohio LLC v. Fishel [see our prior post on that decision], and has held instead that a successor entity can jump into the shoes of its predecessor and enforce the predecessor’s noncompetition agreements.
The earlier opinion had stated that the predecessor entity met its end once the merger took place, and that this event started the running of the “noncompete clock” if that clock was triggered by the employee’s termination of employment with the predecessor entity (as opposed to termination of employment with the predecessor entity “or its successors and assigns” or some such).
The problem with the earlier opinion, according to the Court, was its false assumption that once an entity merged into some other entity, the older entity necessarily ceased to exist. That’s a wrong statement of Ohio corporation law, according to today’s opinion.
Instead:
the absorbed company becomes a part of the resulting company following merger. The merged company has the ability to enforce noncompete agreements as if the resulting company had stepped into the shoes of the absorbed company. It follows that omission of any ‘successors or assigns’ language in the employees’ noncompete agreements in this case does not prevent the L.L.C. from enforcing the noncompete agreements.
The Supreme Court did note that this does not necessarily mean that old noncompetes that had passed through several iterations of mergers and whatnot are always enforceable:
[T]he employees still may challenge the continued validity of the noncompete agreements based on whether the agreements are reasonable and whether the numerous mergers in this case created additional obligations or duties so that the agreements should not be enforced on their original terms.
Since the lower courts had not yet analyzed whether or not the particular noncompete agreement at issue in Fishel was reasonable under this test, the Supreme Court sent the case back down to the lower court for that analysis to be conducted.
As a side note, I love how the Ohio Supreme Court waited until virtually every employment lawyer in Ohio was squirreled away at a conference in Columbus to announce this major reversal. (Smile.)
As before, the new decision is called Acordia of Ohio, LLC v. Fishel. Click the link to read and enjoy.
The Personnel Files 