Noncompete Agreement Binds Former Employees of Purchased Company

By Scott R. Eldridge Aug 17, 2016
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A purchasing company may enforce noncompete agreements against the former employer's ​X-ray technicians.

Noncompete agreements signed by former employees of a business sold as part of an asset purchase are not personal services contracts and, thus, are enforceable by a purchasing company under Missouri law, the 8th U.S. Circuit Court of Appeals concluded. 

Two former mobile X-ray technicians working for Ozark Mobile Imaging, which was sold to Mobilex, went to work for Mobilex's competitor, BioTech X-Ray, after rejecting offers of employment from Mobilex. Mobilex sued both former employees to enforce the noncompete and confidentiality agreements they had signed when they were working for Ozark Mobile. 

The noncompetes stated that each employee was entering into the agreement "[i]n consideration of his/her employment by Mobile Medical Services Inc., Ozark Mobile Imaging, Clearview Mobile Imaging, LLC and/or its affiliates." They also stated that during the term of employment and for two years afterward, the employees agreed within a specified geographical area not to: "(1) directly or indirectly engage in the mobile diagnostic business; (2) in any manner be connected with or employed by a person, company, firm or corporation engaged in the mobile diagnostic business; and (3) for himself/herself or on behalf of any other person, partnership, or corporation call on any customer or customers of Mobile Medical Services, Ozark Mobile Imaging, Clearview Mobile Imaging, LLC and/or its affiliates, for the purpose of soliciting their business for others."

The U.S. District Court for the Western District of Missouri ruled for the employees, concluding that a personal services contract cannot be assigned to a subsequent employer under Missouri law without the employee's contemporaneous consent. The 8th Circuit reversed. 

Noting the lack of Missouri Supreme Court decisions on the issue, the 8th Circuit predicted that the Missouri Supreme Court would follow the majority rule among states that noncompetes are assignable contractual obligations that do not require the employee's contemporaneous consent. Although the Missouri Supreme Court has held previously that personal services contracts, which involve "special knowledge, skill or a relation of personal confidence," are not assignable without consent of both parties, the 8th Circuit held that this case was distinguishable. Specifically, the court noted that the noncompete agreements at issue in the present case are "free-standing noncompete and confidentiality agreements" and "[n]either agreement formed part of a larger employment agreement that required [the employees] to provide personal services of any kind to Ozark."

The "crucial difference between a personal services contract and a noncompete agreement," according to the court, is that "the former requires affirmative actions by the employee, whereas the latter requires only that they refrain from certain actions." That the employees signed the noncompete agreements in exchange for continued, at-will employment did not, according to the court, transform those agreements into personal services contracts. Consequently, the court reversed and sent the case back to the district court, leaving the former employees free to argue that the noncompetes are too restrictive. 

Symphony Diagnostic Services No. 1, Inc. (d/b/a MobilexUSA) v. Greenbaumm, 8th Cir., No. 15-2294 (July 6, 2016).

Professional Pointer: The enforceability of noncompete agreements requires a state-specific analysis. Employers—and multistate employers in particular—should not assume that a noncompete agreement that is enforceable in one state is necessarily enforceable in another state. 

Scott R. Eldridge is an attorney with Miller, Canfield, Paddock and Stone PLC in Lansing, Mich.

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