Is An Assigned Non-Compete Agreement Enforceable?

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In the case of a merger or acquisition, the successor company might take an assignment of the current non-compete agreements in favor of the predecessor company.  The enforceability of an assigned non-compete agreement, however, varies from state-to-state, as is true with most issues concerning non-compete law.  Below is a quick survey of how some of the states in the Southeast address the issue:

Georgia – Non-compete agreements, similar to most contracts in the state, are assignable provided that the duties under the agreement do not materially vary from the performance required by the original parties and provided that the contract is not for personal services.  West Coast Cambridge, Inc. v. Rice, 262 Ga. App. 106 (2003) (finding that successor partnership could enforce noncompete agreement against doctor because the law provided no prohibition against the assignment of the agreement and the agreement was expressly binding on successors and assigns, and noting that contract was not for personal services because it only obligated the doctor to not take certain actions).

Tennessee - Tennessee law recognizes that covenants not to compete are assignable absent specific language in the covenants prohibiting assignment.  See Packers Supply Co. v. Weber, 2008 Tenn. App. LEXIS 226 (Tenn. Ct. App. Apr. 14, 2008) (citing Bradford & Carson v. Montgomery Furniture Co., 115 Tenn. 610, 92 S.W. 1104 (Tenn. 1906)).

Alabama - Because non-compete agreements are disfavored as a restraint on trade (see Ala. Code § 8-1-1), a successor employer cannot enforce an employee’s covenant not to compete.  Construction Materials v. Kirkpatrick Concrete, 631 So. 2d 1006 (Ala. 1994) (refusing to enforce noncompete agreement for successor of employer and noting that the legislature’s omission of a specific provision in Ala. Code § 8-1-1 establishing a successor employer’s right to enforce an employee’s covenant with the predecessor employer creates an affirmative interference that this code section was not intended to allow enforcement by successor employers).

Florida - In Florida, the question is answered specifically by  Fla. Stat. § 542.335(1)(f)(2), which provides that a “court shall not refuse enforcement of a restrictive covenant on the ground that the person seeking enforcement is . . . an assignee or successor” provided that “the restrictive covenant expressly authorized enforcement by a party’s assignee or successor.”  Recently, Florida’s First District Court of Appeal held that a general assignment clause (such as a statement that the agreement will “inure to the benefit of and be binding upon . . . assigns and successor) is sufficient to assign the agreement to a successor.  DePuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928 (Fla. Dist. Ct. App. 1st Dist. 2012).

BURR POINT:  Special attention should be paid when drafting a non-compete covenant to ensure that the assignability of the covenant is in accordance with the parties’ expectations and the applicable state law.

Topics:  Assignments, Contract Drafting, Non-Compete Agreements

Published In: General Business Updates, Labor & Employment Updates, Mergers & Acquisitions Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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