A merger’s impact on the non-competes of the merged company remains a hot topic (see my October 7, 2011 post about the U.S. Court of Appeals for the First Circuit’s reasoning in OfficeMax v. LeVesque, which found the non-competes at issue did not protect the new company). Three weeks ago, the Ohio Supreme Court heard oral argument in a case, Acordia of Ohio LLC v. Fishel, that will go a long way in determining whether non-competes that do not specifically address the new company survive a merger in Ohio.

In Acordia of Ohio, the trial court refused to enforce the four non-competes in question. It ruled that under the specific language of those contracts, the restrictive covenants were confined to the specifically named employers, which changed over time after a series of successive mergers. After each merger, the company holding the specific non-compete disappeared. According to the trial court, this effectively terminated employment under each non-compete and triggered the time period of each non-compete. By the time the four employees decided to leave and join a competitor, each of their non-competes had expired under this analysis. 

The First Appellate District in Hamilton County affirmed the ruling late last year, looking not only at the language of the agreements in question but relying on Ohio statutory law to support its holding (citing in particular, Ohio R.C. 1701.82(A)(3)), which deals with the legal effects of a merger of Ohio corporations). The First District relied on older Ohio Supreme Court authority holding that “the absorbed company ceases to exist as a separate business entity” and that “[b]ecause the predecessor companies ceased to exist following the respective mergers, the Fishel team’s employment ceased to exist following the respective mergers, the Fishel team’s employment with those companies was necessarily terminated at the time of the applicable merger.” 

Former Ohio Court of Appeals Judge Marianna Brown Bettman’s Legally Speaking Ohio Blog has a fine summary of the questions asked by the Ohio Supreme Court Justices at the November 15, 2011 oral argument.  It is tough to handicap how the Court will rule. Logically, the employees’ position does not make sense: if the company in fact disappears, what is there to trigger, let alone compete against or protect, since there is no company left?  On the other hand, Ohio courts have shown increasing antipathy to non-competes over the past four years; given the language of the non-competes and the apparent absence of a provision allowing for the assignment to successors or assigns, it is altogether possible that the Supreme Court could affirm that the non-competes expired. This one is too close to call.

The takeaway? A better definition of “Company” under the Agreement (one that explicitly includes successors and assigns) as well as a provision providing that the agreement shall inure to the benefit of the parties’ successors and assigns would have better protected the employers. In addition, to remove all doubt, perhaps the simplest approach would be for all of the employees re-sign their non-competes with the new employer just before or after the merger.