A new Ohio Supreme Court decision gives employers yet another reason to review their existing noncompetition agreements. In Acordia of Ohio, LLC v. Fishel, a group of employees resigned to join a direct competitor. The employees had signed noncompetes with a predecessor company, which merged into Acordia several years before the resignations.
The agreements stated that the noncompetition period would last for two years after the employees stopped working for "the company." In turn, "the company" was defined as the original corporate entity for which the employees worked – the same entity that eventually merged into Acordia. Notably, the agreements did not address corporate successors or whether the contracts could be assigned to other entities.
Acordia was unsuccessful in the lawsuit it filed to enforce the contracts. In a corporate merger, one of the entities ceases to exist because it is absorbed by the surviving company. According to the Ohio Supreme Court, the merger triggered the noncompetition period, as that was the point when the employees technically stopped working for "the company" (as the contract defined that term) and instead became employed by the surviving entity.
More than two years had passed since the merger, so the court found that the noncompetition period had already expired by the time the employees left.
Periodic review of employment agreements and policies is always a wise practice. For employers who have been involved in corporate mergers and acquisitions, this decision makes it imperative to re-analyze existing contracts. Likewise, form agreements used with new employees should also be reviewed to ensure that their effect will not be negated by future changes to the corporate structure.
For more information, please contact any member of Taft's labor and employment practice group.