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.