Noncompete Agreements Can Pass From One Company to Next

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By Jon Steingart

July 6 — X-ray technicians in Missouri who left their employer when it was acquired by another outfit may be subject to noncompetition and confidentiality agreements they signed with the first business, a federal appeals court ruled ( Symphony Diagnostic Servs. No. 1 Inc. v. Greenbaum , 2016 BL 216016, 8th Cir., No. 15-2294, 7/6/16 ).

The general rule is that one company may not assign a personal services contract to another without employee consent, Judge Jane Kelly wrote July 6 for the U.S. Court of Appeals for the Eighth Circuit. But a personal services contract and a noncompetition agreement differ in that “the former requires affirmative actions by the employee, whereas the latter requires only that they refrain from certain actions,” she said.

The agreements in this case fell into the latter group, Kelly said, reversing summary judgment to MobilexUSA and remanding the case to the trial court.

The ruling is instructive for business leaders who are considering the workforce impact of mergers and acquisitions, but it should be read with caution because state law on noncompetition agreements varies widely. The Eighth Circuit in this case interpreted Missouri case law. Kelly noted that Arkansas, which is also within the Eighth Circuit, as a state where courts show “general skepticism of covenants not to compete.”

Meryl Streep Exception Doesn't Apply

Technicians Kimberly Greenbaum and Josephine Tabanag rejected job offers from Symphony Diagnostic Services No. 1 when its MobilexUSA brand took over Ozark Mobile Imaging, Kelly said. They didn't want to be downgraded to part-time work, she said. The workers had signed noncompete agreements as employees of Ozark.

Kelly left open the possibility that a noncompetition agreement might not be assigned to a successor employer if the assignment would change the worker's obligations or there was something special about the predecessor employer.

For example, “if someone agreed to work as a personal assistant to Meryl Streep subject to a non-compete because of his admiration for Streep’s character and work, allowing the non-compete to be assigned to a less accomplished actor without his consent could fairly be viewed as changing the terms of the deal,” Kelly wrote.

Kelly said the technicians may want to argue that the “unenviable” terms of the positions they were offered would force them into a difficult choice if the noncompetition agreements are upheld: they could leave and have a difficult time finding work or they could stay and “continue working for the employer on the employer’s terms.”

Judges James B. Loken and Raymond W. Gruender joined in the opinion.

Attorneys on both sides didn't immediately respond to phone calls seeking comment. A spokesperson for MobilexUSA couldn't be reached.

Van Matre, Harrison, Hollis, Taylor and Elliott P.C. represented the technicians. Husch Blackwell LLP represented MobilexUSA.

To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

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