The enforceability of a noncompete agreement can vary greatly by State. When drafting a noncompete agreement or restrictive covenant, a critical decision will be which State’s law should apply in an enforcement dispute. Delaware employers have very favorable law on their side, as noncompete agreements are enforced here to a much greater extent than many others. Here’s an example.
In May, the Ohio Supreme Court considered the enforceability of a non-compete agreement by a successor of the original contracting employer. In other words, can a non-compete agreement be enforced after the original employer is acquired in a sale or merger. In Acordia of Ohio v. Fishel, four employees signed non-compete agreements with their employer. The agreements provided that the employees would not compete with the employer for two years following termination. The agreements did not contain language that would extend the prohibitions to the employer’s successors or assigns.
In 2001, the employer merged with Acordia of Ohio, LLC. Following the merger, only Acordia survived. The four employees continued to work for the new entity until August 2005, when, you guessed it, they went to work for a competitor. Within six months of their resignations, they’d managed to recruit 19 customers worth about $1 million to the competitor.