Confidentiality and non-compete agreements are documents that are typically designed to protect businesses from the harmful actions of former employees. Employees are often required to sign these agreements at the time they are hired. When ownership of a business changes hands, questions frequently arise as to whether those covenants may be legally assigned and enforceable by the purchaser.
In a recent decision handed down by the US Appeals Court in the Eighth Circuit, that Court held that a successor employer -who was assigned non-competition agreements as part of an asset purchase agreement- could seek to enforce the non-competition agreements under Missouri law against two former employees of the preceding employer who went to work for a competitor. In Symphony Diagnostic Servs., d/b/a MobilexUSA v. Greenbaum, et al., the Eighth Circuit reversed the lower court’s order granting summary judgment to the former employees on the basis that the non-competition agreements were “personal service contracts” and could not be assigned without the employees’ consent. The Appellate Court disagreed and found that that the non-competition agreements were not personal service contracts and, therefore, could be assigned without the employees’ consent. In overturning the lower court’s finding, the Eight Circuit noted the absence of any language in the contracts that expressly restricted or permitted assignment.
The outcome of this case provides helpful lessons for employers seeking to enforce restrictive covenants as well as employees hoping to avoid enforcement following the acquisition of a business via an asset purchase.
- Pay close attention to state law
- Be sure to read and understand any provisions that specifically address assignment without the other party’s consent. This may be found in a successors and assigns clause.
- Look into whether the terms of the non-compete or confidentiality agreements are linked to the specific employer or to the employee’s particular duties, or are of a broader scope, in which case the assignment is less likely to be enforceable.
Philadelphia Employment Lawyers at Sidkoff, Pincus & Green P.C. Advise Employers and Employees on the Enforceability of Restrictive Covenants
Philadelphia employment lawyers at Sidkoff, Pincus & Green have extensive experience drafting, reviewing, enforcing, and disputing employment contracts. Before you sign a document that contains a non-compete or confidential agreement, call 215-574-0600 to arrange a consultation with one of our experienced Philadelphia employment lawyers or contact us online.