The Oregon District Court recently addressed the question of when an acquiring company can enforce non-compete and non-solicitation agreements signed by employees of the purchased company. The original employment agreements were silent with respect to assignment and employees were not asked to consent to assignment at the time of the acquisition. Instead, ten months after the closing, and two days before Christmas, employees were given three days to consent to assignment or risk termination of employment.
When an employee who signed a delayed consent quit and went to work for a competitor, the employer (acquiring company) sought an injunction to enforce the noncompete. The Court found that the acquiring employer could not enforce the non-compete/non-solicitation provisions in the employment contract. First, the Court clarified that although employment agreements are personal service contracts which, by their nature, are not assignable, employment agreements may be assigned where the parties agree to assignment (either by the express written terms of the agreement or via consent). The Court then held that the consent obtained during the three-day period under threat of termination was not a voluntary consent and thus the Court refused to enjoin the employee from working for a competitor.
The lesson here for employers is to draft employment agreements to permit assignment or, to obtain consent to assignment in circumstances that do not suggest duress or coercion. In the alternative, if the employee is very valuable and it is crucial to have an enforceable noncompete with the employee, provide the employee with consideration (including a bone fide advancement) to support entry into a new agreement.