In Acordia of Ohio, L.L.C. v. Fishel, 2012-Ohio-2297, the Ohio Supreme Court held that while employees’ noncompete agreements transfer by operation of law following a merger with an L.L.C., the language in such an agreement may preclude the L.L.C. from enforcing the agreement. The Court found that the particular agreements in dispute did not contain language that any successor corporations had a right to enforce a noncompete agreement between the original corporation and the employee. As a result, the Supreme Court held that the language in the noncompete agreement precluded Accordia from enforcing the noncompete restrictions against Fishel and others.
After Accordia (1) was released, Acordia and various supporting amici curiae requested reconsideration. On October 11, 2012, the Ohio Supreme Court issued a new decision granting Acordia’s motion for reconsideration, and reversed its original decision.
The majority concluded that certain language in its original decision was erroneous. The Court first clarified that in accordance with R.C. 1701.82(A)(3), all assets and property, including employment contracts and agreements, and every interest in the assets and property of each constituent entity, transferred by operation of law to the resulting company after a merger. However, the Court acknowledged that it had erred in its consideration of its prior decision in Morris v. Invest. Life Ins. Co., 27 Ohio St.2d 26 (1971) when deciding Acordia (1).
In Morris, the Court held that after a merger, an absorbed company ceases to exist as a separate business entity. In reviewing Morris, the Supreme Court now clarifies that the absorbed company is not completely erased from existence. Instead, the merged company has the ability to enforce noncompete agreements as if the resulting company had stepped in the shoes of the absorbed company. Thus, despite the omission of any “successor or assigns” language in the employees’ noncompete agreements, the L.L.C. is not prevented from enforcing the noncompete agreement.
By: Merl H. Wayman