Assignment of Employee Noncompetes in the Acquisition Context
The recent decision of the Nevada Supreme Court in HD Supply Facilities Maintenance, Ltd. v. Bymoen, No. 50989, 2009 BL 127544 (Nev. June 11, 2009), in which the Court held that a survivor of a statutory merger can enforce a noncompete between the non-survivor of that merger and an employee of the non-survivor, reminded us of the various positions courts have taken with respect to the assignment of noncompetes in various acquisition contexts:
California: John Douglas of our San Francisco office writes:
In many states today, covenants not to compete are considered valid so long as they are reasonably imposed. In California, covenants not to compete are void unless one of three statutory exceptions apply. Cal. Bus. & Prof. Code § 16600. One such exception applies in the context of the sale of a business. Cal. Bus. & Prof. Code § 16601. Section 16601 provides that any person who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within a specified geographic area so long as the buyer carries on a like business in that area. Id.; see also Hill Medical Corp. v. Wycoff, 86 Cal. App. 4th 895, 903 (2001). This provision encompasses statutory mergers as well. Hilb, Rogal and Hamilton Insurance Services, Inc. v. Robb, 33 Cal. App. 4th 1812, 1824-25 (1995). Under California law, a covenant not to compete that arises in the context of the sale of a business may be assigned to subsequent purchasers. See Consolidated Photographic Industries v. Marks, 109 Cal. App. 2d 310, 312-13 (1952) (holding that a noncompetition agreement is enforceable against the former owner of a company when the buyer of the company discontinued its operations under its own name and sold all its assets to another company).
Florida: Christi Adams of our Orlando office writes:
Under Florida law, if the parties have agreed to and contracted to allow enforcement of the contract by a successor party, the court lacks the discretion to deny enforcement of the contract because the successor was not an original signatory. § 542.335, Fla. Stat. In contrast, in a sale or purchase of corporate assets alone, the acquiring business does not as a matter of law assume the liabilities of the predecessor business, since the selling corporation may continue in existence, dissolve, or merge with the purchasing entity. Thus, when the sale of the assets includes a personal service contract that contains a noncompete agreement, the purchaser can enforce its terms only with the employee's consent to an assignment. However, in the cases of (1) a 100 percent stock purchase in which the corporate entity is unchanged except for a change in name or management; (2) a corporate merger in which two corporations unite into a single corporation and the surviving corporation assumes the rights and liabilities of the merging corporation; or (3) where a corporation merely undergoes a name change, the surviving corporation assumes the right to enforce a noncompete by operation of law and no assignment is necessary. This outcome is based upon Florida statutory law governing merger, which provides that the "surviving corporation of a merger 'shall have all the rights, privileges, immunities and powers, and shall be subject to all of the duties and liabilities' of the merged corporation." § 607.1106, Fla. Stat.
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In these extraordinary economic times, many employers are learning to think outside of the box and explore employment arrangements that may be new to the United States. Many employers are familiar with restrictive covenants such as noncompetition agreements and non-solicitation agreements. However, if the employer's objective is to delay the employee's termination of employment for a short period of time, there is another option available that may assist the employer. The employer may consider using a "garden leave" provision..jpg)
Cases and issues making the headlines*:
The Wisconsin Supreme Court today issued a landmark decision changing the legal landscape in Wisconsin for covenants not to compete after employment. Covenants not to compete have long been disfavored in Wisconsin. Enforceable agreements are difficult to draft: litigants have taken to searching agreements with a fine-toothed comb to find any hint of over-breadth, then arguing that the unreasonableness of one restriction rendered all restrictions unenforceable. This "void one, void them all" approach was fostered by a 2001 decision in which the court of appeals held that provisions are "intertwined and indivisible" if they govern similar activity - which almost all restrictive covenants do. Today, however, the Wisconsin Supreme Court overruled that decision, explaining that separate restrictions in the same agreement are "intertwined and indivisible" only if one provision cannot be read or interpreted without reference to the other. See Star Direct, Inc. v. Dal Pra, 2009 WI 76. If an otherwise enforceable covenant can stand on its own, it can be enforced even if another covenant in the same agreement is unenforceable.
Two related blog posts caught my attention. Both were speaking to Massachusetts law, although the strategies and concerns are more broadly applicable. .jpg)
Reports (e.g., 
This is the inaugural posting to Foley & Lardner LLP's Trade Secret/Noncompete Blog. And, what better way to kick it off than with an announcement of a