Third Party Corporation Can Enforce Non-Compete After Stock Purchase

ThyssenKrupp Elevator Corporation v. Hubbard, 2013 WL 3242380 (M.D. Fla 2013) considers whether a company that buys the assets of another can enforce the purchased company’s non-compete agreements. 

The defendant was an elevator salesman for a company that was bought by the plaintiff. an elevator company.  The defendant previously signed a non-disclosure (involving intellectual property), non-solicitation and non-compete provision. 

Soon after plaintiff acquired his employer, defendant resigned and joined one of plaintiff’s competitors. Plaintiff sued, claiming a breach of the restrictive covenants. 

Defendant moved to dismiss on the ground that plaintiff wasn’t a party to the employment contract that contained the restrictive covenants.

The Court denied the motion to dismiss.  Citing a 2008 Florida Federal case (Johnson Controls, Inc. v. Rumore, 2008 WL 203575) and Florida’s Business Corporation Act, the court held that where there was a 100% merger or stock transfer, the surviving company (here, plaintiff) assumed all rights and obligations of the predecessor,  including rights under  the challenged non-compete agreement.  *2, Fla. Stat. § 607.1106 (surviving corporation of a merger shall have all the rights, privileges, immunities and powers, and shall be subject to all the duties and liabilities of the merged corporation). 

Here, in light of plaintiff’s stock purchase of defendant’s former employer, plaintiff was a “surviving corporation” and could sue to enforce defendant’s non-compete  

Take-aways:

A third party can enforce employee restrictive covenants where there is an asset purchase by the third party;

Employees should press for terms in their employment contracts that clarify only their direct employer (and not an acquiring company) can hold them to restrictive covenants.  

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.

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