Ohio Supreme Court Partially Reverses its Acordia Non-Compete Decision

Posted on October 11, 2012 by Kevin Griffith

This past May, we reported that the Ohio Supreme Court ruled in Acordia of Ohio, L.L.C. v. Fishel that following a merger, the surviving company may not be able to enforce employees’ non-compete agreements, where the agreements failed to contain an assignment clause, and the time period of the employees’ non-competes began to run as of the date of the merger. The Court reconsidered its decision, and issued a new decision today. Upon quick review, the bottom line seems to be that the Court has decided that it mis-read earlier precedent regarding corporate mergers. Here is part of the summary from the Office of Public Information:

Justice Lanzinger wrote, "Upon further consideration, we now recognize that the lead opinion's reading of Morris [v. Investors Life Insurance Co.] was incomplete. While Morris does state that the absorbed company ceases to exist as a separate business entity, the opinion does not state that the absorbed company is completely erased from existence. 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."

While we now hold that the L.L.C. may enforce the noncompete agreements as if it had stepped into each original contracting company's shoes, we agree with Justice Cupp's assertion in his dissent in Acordia I that even though the agreements transfer to the L.L.C. by operation of law, the transfer does not 'foreclose appropriate relief to the parties to the noncompete agreement under traditional principles of law that regulate and govern noncompete agreements.' ... In other words, the 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."

The language in Acordia I stating that the L.L.C. could not enforce the employees' noncompete agreements as if it had stepped into the original contracting company's shoes or that the agreements must contain 'successors and assigns' language in order for the L.L.C. to enforce the agreements was erroneous. We hold that the L.L.C. may enforce the noncompete agreements as if it had stepped into the shoes of the original contracting companies, provided that the noncompete agreements are reasonable under the circumstances of this case. We accordingly reverse the judgment of the court of appeals and remand this cause to the trial court so that it may determine the reasonableness of the noncompete agreements."

If you are involved in merger and acquisition due diligence, this removes one potential problem from your checklist. But the issue of whether a non-compete agreement is reasonable "under the circumstances" still needs to be considered.

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Clearing the Backlog - September

Posted on September 30, 2011 by Brian Hall

More and more these days it seems like the obligations of being a lawyer, husband, father, son, sports fan, etc, get in the way of blogging. As a result, I end up accumulating a number of worthwhile topics for blog posts that end up in the discard pile. Twitter helps keep the backlog to a minimum, but I really don't know how many of you actually follow me @briandhallesq (hint, hint). So, while I am by no means committing to make this a regular feature of Employer Law Report, I will now clear – in no particular order -- my backlog for the month:

According to a Wall Street Journal article, a recent lawsuit seeks a declaration from the New York Department of Labor that putting a GPS tracker on an employee's family car to uncover time sheet violations was a violation of the state constitution's guarantee against unreasonable searches and seizures. According to the lawsuit, the monitoring continued during evenings, weekends and a family vacation. This won't turn out well for the employer.

An Ohio appellate court has upheld a physician's non-compete agreement that prohibited him from engaging in a hematology or oncology practice in his former employer's "primary service area." This decision continues the Ohio trend of upholding physician non-competes and Ohio courts have repeatedly rejected the argument that covenants are not enforceable against physicians solely because they impair patients’ choice.

In Flagstaff Medical Center, the NLRB found that a hospital employer's rule against photographing patients and/or hospital equipment , property or facilities was not overly broad. We quote the critical portion of the Board's decision in this regard here:

We agree with the judge that FMC's rule restricting photography of hospital property is not unlawfully over-broad as it does not have a reasonable tendency to interfere with Section 7 activities. Lutheran Heritage Vilage-Livonia, supra. First, FMC's rule against photo-graphing hospital property does not expressly restrict Section 7 activity. Further, like the judge, and contrary to our dissenting colleague, we find that employees would not reasonably interpret the rule as restricting Section 7 activity. The privacy interests of hospital patients are weighty, and FMC has a significant interest in preventing the wrongful disclosure of individually identifiable health information, including by unauthorized photography. See, e.g., 42 U.S.C. § 1320d-6 (prohibiting wrongful disclosure of individually identifiable health information). Employees would reasonably interpret FMC's rule as a legitimate means of protecting the privacy of patients and their hospital surroundings, not as a prohibition of protected activity. Finally, there is no evidence that FMC promulgated the rule in response to Section 7 activity or that FMC actually applied the rule to prohibit Section 7 activity. The General Counsel does not argue, much less establish, that any photography that predated the rule's promulgation was protected by Section 7. Accordingly, we shall dismiss this allegation.

HB 335, which was introduced in the Ohio Legislature this week, would prohibit discrimination on the basis of sexual orientation or gender identity. A similar bill was introduced in the statehouse last May, but went nowhere. 

On September 7th, the Sixth Circuit in Geronimo v. Caterpillar, Inc. upheld the plaintiff's discharge pursuant to the employer's policy requiring injury reports within 48 hours, despite the fact that Tennessee law provides an employee with 30 days to report injuries in order to preserve the rights to benefits. Ohio simply has a two-year statute of limitations for filing claims. Isn't it time for Ohio to join other states in requiring more prompt injury reports? Doesn't it make sense for Ohio employers to institute their own policies similar to Caterpillar's?

Back in August, in Kapp v. Jewish Hospital, Judge Marbley of the U.S. District Court for the Southern District of Ohio addressed the interesting question, among others, of what happens when an employee takes contradictory positions regarding his ability to return to work in his claim for workers' compensation benefits and his claim that the employer interfered with his rights under the FMLA.

On September 15th, the Ohio Supreme Court issued its decision in Dohme v. Eurand Am. Inc. in which it held that a plaintiff alleging that he was wrongfully discharged in violation of the state's public policy favoring workplace safety must be able to point to a the state constitution or a state statute, regulation, or common law as the specific source of that policy.
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Ohio Supreme Court to Address Assignability of Noncompetes During Mergers and Acquisitions

Posted on April 21, 2011 by Brad Hughes

Yesterday the Ohio Supreme Court agreed to hear an appeal that addresses the extent to which a corporate merger may impact the surviving company's ability to enforce restrictive covenants that its predecessor companies entered into with their employees.

In Acordia of Ohio LLC v. Fishel et al., several Acordia employees (called the "Fishel team") left the company in 2005 and began working with a competitor, Neace-Lukens. These employees had previously signed noncompete agreements with Acordia's predecessor companies, prohibiting them from competing with the predecessors for two years after termination. They did not sign new agreements with the surviving company. When Acordia tried to enforce the restrictive covenants against the departing employees, the Hamilton County Court of Appeals decided that the two-year noncompetition clock in those agreements had already expired. The court concluded that the restrictions under the employees' noncompete agreements were triggered when Acordia's predecessors merged, saying: "Because the predecessor companies ceased to exist following the respective mergers, the Fishel team's employment with those companies was necessarily terminated at the time of the applicable merger. By their own terms, the agreements' restrictions were triggered by the relevant mergers and acquisitions."

Acordia contends that the court of appeals' decision injects confusion and uncertainty into Ohio law concerning the effect of mergers and acquisitions on restrictive covenants. For example, Acordia claims that the court of appeals' decision "denied the surviving company of a statutory merger the right to enforce the agreements not-to-pirate customers signed by employees of the constituent companies, which were assets transferred in the merger to protect the goodwill, trade secrets and proprietary information acquired in the merger." The Fishel team defendants reject the idea that the decision injects uncertainty into mergers and contend that Acordia’s position would give the surviving company “far greater rights than the contracting employers had and impose far greater burdens on the employees.”

Briefing in the case will begin in about two months, and updates will follow on this blog.
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