Ohio Supreme Court Reverses Itself on Enforceability of Non-Compete Agreements Post-Merger

On May 24, 2012, the Ohio Supreme Court issued a decision holding that the language of a non-compete agreement that failed to specify that it would extend to an employer’s “successors or assigns” would not allow a post-merger surviving company to enforce the non-compete “as if it had stepped into the shoes of the original company.”

In Acordia of Ohio LLC v Fishel, the Court decided that the non-compete agreements by their terms were only between the employees and companies that hired them. Even though the agreements themselves transferred to the new entity after a merger pursuant to statute (R.C. 1701.82), the wording within those agreements prevented the new entity from enforcing a non-compete “as if it were the original company with which the employees agreed not to compete.” The Court noted that the new entity could have required its employees to sign a new non-compete agreement.

Acordia filed a motion for reconsideration supported by amici curiae, resulting in a “clarification” which is really a reversal. In Acordia II, decided on October 11, 2012, the Court held that “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” and “omission of any ‘successors or assigns’ language in the employees’ noncompete agreements…does not prevent [the resulting entity after merger] from enforcing the noncompete agreements.”

Although the Supreme Court has thus calmed the nerves of drafters of non-compete agreements which did NOT contain “successors and assigns” language, we recommend insertion of such language going forward “just in case.”

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