When a company purchases the assets of another company, the circumstances in which the sale takes place could impact the enforceability of the seller’s non-compete agreements with its employees. For example, a 100 percent stock purchase of an active corporation will generally entitle the buyer to enforce the seller’s non-compete agreements. However, if the buyer is merely purchasing corporate assets from a dissolved corporation, the buyer may not be entitled to enforce the dissolved corporation’s non-compete agreements. Even if an employee bound by a non-compete agreement worked for the seller throughout the dissolution of the company and then continued to work for the buyer thereafter, this fact alone does not constitute consent by the employee to be bound by the non-compete agreement with the purchasing company. Peter Mavrick is a Miami non-compete lawyer, and also represents clients in non-compete litigation in Fort Lauderdale, Boca Raton, and Palm Beach. Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.
In the case of Sears Termite & Pest Control, Inc. v. Arnold, 745 So. 2d 485 (Fla. 1st DCA 1999), All America Termite & Pest Control, Inc. (All America) entered non-compete agreements with its employees David Arnold (Arnold) and Gary Atchey (Atchey). A few years later, Sears Roebuck and Co. purchased 100 percent of the stock of All America and changed the company’s name to Sears Termite and Pest Control, Inc. (Sears). Arnold and Atchey continued their employment with All America and Sears during this period of transition. Arnold left his employment with Sears and began a competing company, called Diamond Termite & Pest Control (Diamond). Atchey also left his employment with Sears and went to work for Diamond.
Sears filed a lawsuit for damages against Arnold, Diamond, and Atchey (Defendants) and filed a motion for temporary injunction. After an evidentiary hearing, the court denied the motion for temporary injunction. Sears immediately appealed. Defendants contended that the non-compete agreements were unenforceable, because All America did not assign the contracts to Sears. Under Section 542.335(1)(f) of the Florida Statutes, non-compete agreements are enforceable by a successor company, provided that the non-compete agreement expressly authorizes enforcement by the successor company.
The appellate court disagreed and held that Sears Roebuck and Co.’s acquisition of All America’s stock did not affect its contractual rights and obligations. The change of the company’s name from “All America Termite and Pest Control” to “Sears Termite and Pest Control, Inc.” was just a name change, and did not affect the employer’s corporate identity. See Stewart v. Preston, 80 Fla. 473 & 479, 86 So. 348 (1920). Thus, an assignment was not required. The appellate court reversed the trial court’s decision and remanded the case back to the trial court for further proceedings.
By comparison, in the case of Johnston v. Dockside Fueling of North America, Inc., 658 So.2d 618 (Fla. 3d DCA 1995), the Third District Court of Appeal found that the former employee was no longer bound by a non-compete agreement in his employment contract because during his employment, his corporate employer was dissolved and its assets were transferred another company. Sears’ stock purchase of All America, on the other hand, did not involve a dissolution of the corporate entity.
In Johnston, Dockside Fueling Service, Inc. [Dockside] entered a non-compete with its employee, Steve Johnston (Johnston). Dockside was subsequently involved with a fuel spill and dissolved the corporation. A few months later, Dockside, N.A. was incorporated and Dockside’s assets were transferred to Dockside, N.A. Throughout this entire period, Johnston continued to work for Dockside and Dockside, N.A.
Johnston later informed Dockside, N.A. that he was opening a competing business. Johnston’s employment was immediately terminated. Johnston then opened his company, solicited and serviced customers of Dockside and Dockside, N.A. Dockside, N.A. filed a lawsuit against Johnston and his company to enforce the non-compete agreement. The trial court found that the employment agreement was valid because the transfer of assets constituted nothing more than a name change. The trial court entered a judgment against the defendants. Johnston and his company immediately appealed.
The appellate court found that the trial court erred by determining that Dockside’s rights to Johnston’s non-compete agreement were transferred to Dockside, N.A. Johnston contended that personal service contracts are generally not assignable and that his employment agreement did not allow for an assignment. The appellate court agreed and reversed the trial court’s judgment. The appellate court found that when the corporation was dissolved and a new one was created; Johnston’s continued employment alone could not be construed as consent to the assignment of his employment contract from Dockside to Dockside N.A. The appellate court concluded that Dockside N.A. could not enforce the non-compete agreement contained in the employment contract.
Peter Mavrick is a Miami-Dade non-compete lawyer who also practices non-compete litigation in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.