Ohio Supreme Court Reconsiders Its Acordia Non-Compete Ruling and Finds Successor Company Can Enforce Non-Compete Against Predecessor’s Employee’s Without Successorship Language in Agreement

This morning, in an unusual move, the Ohio Supreme Court reversed itself on a high-profile non-competition opinion it issued less than four months ago.  Acordia of Ohio, L.L.C. v. Fishel, Slip Opinion No. 2012-Ohio-4648.  As previously discussed here, the Court refused in the prior decision to enforce a non-competition clause against the plaintiff’s former employees because, among other things, they signed the agreement with the plaintiff’s predecessor company (which merged into the plaintiff company) and the agreement contained no successorship/assignment language.  While the agreement transferred to the plaintiff company upon the merger by operation of law, the Court found the plaintiff company could only enforce the agreement for the two year non-competition period in the agreement (which began to run upon the merger) and could not enforce it against employees who resigned five years after the merger.  However, upon a request for reconsideration by the plaintiff company (and a few amicus briefs), the Court clarified that the prior and current opinion only applied to non-competition agreements (rather than other corporate contracts) and agreed that it had misread prior court precedent to improperly limit the enforceability of the agreement.  Therefore, the Court held that the successorship/assignment language was unnecessary to enforce the non-competition clause.

The Court admitted that it had erroneously believed that the merged company ceased to exist entirely upon the merger and this erasure started the two-year non-competition period.  It now realizes that the merged company is instead absorbed into the surviving entity.  In particular:

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.

Based on the foregoing clarification, we note that any language in the lead opinion in Acordia I stating that the L.L.C. was unable to enforce the employees’ noncompete agreements as if it had stepped into the original contracting company’s shoes or that the agreements were required to contain “successors and assigns” language for the L.L.C. to have the power to enforce the agreements was erroneous.

Nonetheless, as mentioned in my prior description of the oral argument in this case, the Court remains sympathetic with the employees’ objection to the enforcement of a non-compete with a giant company (with a large non-competition area) when it only signed a non-compete with a small company (with a much smaller non-competition area of only one county).  The employees argued that their original intent should be considered, while the plaintiff company argued that the same result would have occurred if the original company had simply grown into a larger entity instead of being purchased by one.   The Court’s majority directed the lower courts to consider the employees’ objection to the enlarged scope of the non-compete area.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.