Posts tagged with "assignability"

Assignability of Non-Compete Agreements Under Connecticut Law in the Event of a Merger

Assignability of Non-Compete Agreements Under Connecticut Law in the Event of a Merger

Neopost USA, Inc. v. McCabe, 2011 U.S. Dist. LEXIS 105850

Neopost USA, Inc. and Pitney Bowes, Inc. are two companies that essentially hold a duopoly on the national “mailing equipment” market, an industry that includes postage meters, mailing machines, addressing machines, folders, inserters, and relevant software. Neopost, Inc. employed Mr. John McCabe from 2002 to August 1, 2011 but did not have him sign a non-compete agreement until February 2005, at which time he received a pay raise in connection with a corporate reorganization. The parties executed a subsequent restrictive covenant in March 2006. The agreements prohibited Mr. McCabe from engaging in competitive business activities for one year following termination within fifty miles of any Neopost office where he had worked during his employment with the company. Additionally, he could not solicit Neopost’s customers or employees during the specified one-year period. Neopost,, Inc. merged with Hasler, Inc. and the transaction became official in November 2009 with the creation of a new company, Neopost USA that assumed title to Neopost, Inc.’s assets and liabilities. Mr. McCabe’s last day with Neopost was August 1, 2011 and he began to work for Pitney Bowes, its direct and main competitor, only a few days later. There was a dispute between the parties regarding whether Mr. McCabe voluntarily terminated (resigned) his employment with Neopost or the company fired him.
Neopost sued Mr. McCabe in federal court for violation of the non-compete agreement and requested that the court enforce the provisions of the covenant in order to prevent further breaches of the agreements executed by the parties. Mr. McCabe argued that his non-compete agreement with Neopost, Inc. were not assignable to Neopost USA, Inc. after the merger with Hasler, Inc. and thus, he was not bound by the provisions contained therein. The court rejected Mr. McCabe’s defense and granted Neopost’s request for injunctive relief and the enforcement of the non-compete agreements. The court did not bother deciding the question of fact regarding the classification of Mr. McCabe’s termination. Provisions of a non-compete are automatically trigger upon termination, regardless of whether it is voluntary or involuntary in nature. The issue at hand and the focus of the court was the validity and enforceability of the non-compete agreements between Neopost and Mr. McCabe.
The court held that the non-compete agreements were assignable to Neopost USA following the merger, citing Connecticut law that “all property owned by, and every contract right possessed by, each corporation or other entity that merges into the survivor is vested in the survivor without reversion or impairment”. Conn. Gen. Stat. § 33-820(a)(4). In the event of a corporate merger, the surviving company holds title to all contracts and employment agreements of the predecessor companies and their provisions are valid and enforceable under Connecticut law.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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De Facto New Employment Relationship Precludes Restrictive Covenant Enforcement By Successor Employer

De Facto New Employment Relationship Precludes Restrictive Covenant Enforcement By Successor Employer
Kelly Services, Inc. v. Savic, 2006 U.S. Dist. LEXIS 83930
Ms. Anna Savic worked as a legal recruiter at The Wallace Law Registry and its successor companies from February 1989 until her resignation on June 20, 2005. She began her employment primarily recruiting and placing paralegals in the Connecticut legal market. Ms. Savic executed an employment agreement with Ms. Shelly Wallace, the owner and sole shareholder of the company, on October 2, 1990. The agreement detailed the employment relationship between Ms. Savic and the company, specifically stating that employment was at-will where either party could terminate the relationship at any time with or without cause (paragraph #3), that all the company’s information and records were private/privileged/confidential (paragraph #8), that she was prohibited from soliciting any applicant or client without express written consent for two years following termination (paragraph #9), and that she was prohibited from soliciting any employees to leave the employ of the company for two years following termination (paragraph #11).
The Wallace Law Registry experienced a series of mergers and acquisitions during Ms. Savic’s employment and the company eventually became part of Kelly Services, Inc., a Delaware corporation with headquarters in Troy, Michigan. Ms. Savic’s duties and responsibilities significantly changed around March 2000 and she received a new compensation schedule despite the fact that no new employment agreement was executed. Kelly Services commenced an action to enforce the provisions of the 1990 Employment Agreement when Ms. Savic resigned from the company in 2005. Ms. Savic asserted that the contractual obligations of the 1990 Employment Agreement were no longer in effect and that the agreement itself was not assignable during the series of mergers and acquisitions that occurred throughout her employment.
The central issues for the court were: (1) whether the 1990 Employment Agreement between Ms. Savic and The Wallace Law Registry was enforceable to Kelly Services because it lacked an assignment clause, and (2) if the agreement was assignable, whether it was enforceable. While the 1990 agreement was silent on the assignability and/or successorship of the contractual provisions, Connecticut law and policy nonetheless enshrine the principle that employment contracts are assignable business assets. Specifically, “Connecticut adheres to the view, rejected by most jurisdictions, that an employee’s covenant not to compete is an assignable asset of the employer”. Madrigal Audio Laboratories, Inc. v. Cello, Ltd., 799 F.2d 814, 821 (2d Cir. 1986). The court determined that the 1900 agreement was assignable but ultimately concluded that it was not enforceable by Kelly Services.
In order to be successful in requesting enforcement of a non-compete agreement, a plaintiff must demonstrate (1) irreparable harm and (2) either (a) the likelihood of success on the merits or (b) sufficiently serious questions on the merits to make them fair ground for litigation. The court held that that Kelly Services failed to establish a likelihood of success on the merits of the case. The changes in employment/responsibilities in March 2000 went beyond mere modifications to the original employment agreement and the court concluded that a new employment relationship was created even though it was not formally detailed in a new employment agreement. This, accordingly to the court, rendered the 1990 Employment Agreement between Ms. Savic and The Wallace Law Registry unenforceable and no longer in effect.
This case is one that demonstrates that there are exceptions to every rule. Despite the general policy in Connecticut of assigning employment contracts in the event of a merger or acquisition, there are always certain circumstances where the original agreement will not be enforceable by the successor employer. An employer is prevented from enforcing an original employment agreement when a de facto new employment relationship is created due to significant changes in responsibilities, compensation, and/or position within the company.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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