NON-COMPETE AGREEMENTS: HOW A BUSINESS TRANSACTION IS CHARACTERIZED CAN AFFECT THE ASSIGNABILITY OF A NON-COMPETE

Non-compete agreements serve to protect an employer’s business interests and prevent employees from engaging in unfair competition. When a business sells its assets, merges with another company, or dissolves entirely, the ability to assign a non-compete agreement is affected differently. Peter Mavrick is a Fort Lauderdale non-compete lawyer who has extensive experience dealing with non-compete agreements and their assignability.

Florida’s Fourth District Court of Appeal in Magner Intern. Corp. v. Brett, 960 So. 2d 841 (Fla. 4th DCA 2007), was confronted with the issue of whether a corporate successor could enforce the non-compete agreement of the former employer. The corporate successor sought an emergency motion for temporary injunction to enforce the former employer’s non-compete agreement. In response to the corporate successor’s motion, the employee alleged the following: (1) that the former non-compete agreement was no longer valid because the corporation had been dissolved; (2) two separate corporations had been formed; and (3) as a result of the dissolution his non-compete agreement had not been properly assigned to the corporate successor. The Seventeenth Judicial Circuit Court ruled in favor of the employee and denied the corporate successor’s emergency motion because there was no standing to enforce the provisions of the non-compete agreement. The corporate successor then appealed.

In Magner, a Connecticut based corporation was in the process of a corporate reorganization and separation. Originally, the corporation contained two divisions, a domestic division and an international division. As a part of the Reorganization Plan, all of the assets from the international division were transferred to the newly organized Florida corporation. Since the original non-compete agreement specifically stated that the Employment Agreement “shall be interpreted and enforced in accordance with the laws of the State of Connecticut,” the Florida courts applied Connecticut law. Under Connecticut law, non-compete agreements may be assigned upon the sale of a business or automatically assigned where the entire business is sold to another entity. The reason being that an employee’s covenant not to compete is “an assignable asset of the employer.”

The Florida appellate court analyzed the Reorganization Plan in accordance with Connecticut law. The appellate court determined that in order for the terms of a non-compete agreement to be enforced by the purchasing company, that company must either: (1) acquire all of the assets of the company that initially held the employment agreement, or (2) upon sale be assigned the rights to the covenant. Since the entire business of the corporation did not transfer to the newly organized Florida corporation, there could not be an automatic assignment of the non-compete agreement. Despite there being no automatic right to enforce the non-compete agreement, there was an assignment clause in the Employment Agreement.

The appellate court concluded that there was a valid assignment of the non-compete agreement. The appellate court reversed the trial court’s decision and explained that the trial court erred in denying the corporate successor’s motion because there was a valid assignment, and the corporate successor did have standing to enforce the non-compete agreement.

When a business sells assets, merges, or dissolves, it is important to understand the various legal implications that can result. If you are a business owner in the process of selling assets, merging, dissolving, or reorganizing the company, it is important to understand the various legal implications that can result. If you are currently in litigation regarding the assignability of a non-compete agreement, or if you have any general questions about non-compete agreements, contact Fort Lauderdale non-compete attorney Peter Mavrick.

The Fort Lauderdale non-compete litigation attorneys at the Mavrick Law Firm have successfully represented many clients in Florida restrictive covenant cases in the Miami-Dade, Broward, and Palm Beach County areas encompassed by the Third and Fourth District Courts of Appeal, as well as Hillsborough, Sarasota, and other counties encompassed by the Second Circuit Court of Appeal. This article does not serve as a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.