Rule Reversal

Staff Writer
Columbus CEO

Rarely does the Ohio Supreme Court reconsider its decisions, but the state’s high-court judges did just that when an earlier ruling over noncompete agreements threatened to upend a contract-law precedent. In reconsideration of Acordia of Ohio v. Fishel, the court reaffirmed that successor companies can enforce noncompetes as if they had “stepped into the shoes of the contracting company.”

The court’s initial ruling in May 2012 would have prevented acquiring companies from enforcing noncompetes following a sale or merger unless the original contracts included specific language regarding the successor company. The case arose from a suit between former employees and insurance provider Acordia of Ohio after the company underwent a series of mergers and restructurings.

The Acordia ruling presented Ohio companies with the labor-intensive task of reviewing and rewriting noncompetes to make them enforceable. “It was perceived as a big issue,” says Jill Kirila, a partner and employment law attorney with Squire Sanders. “The implication would have left a bunch of questions unanswered. … The reaction was that the Supreme Court had gone against the grain of well-settled corporate law, being that a company could take agreements as-is after a merger.”

Corporate law blogs lit up following the initial ruling. The Ohio Chamber of Commerce, the Ohio Chemistry Council, Cintas and several insurance groups filed briefs in support of Acordia’s motion for reconsideration, prompting a 6-to-1 reversal issued in October as Acordia II.

Ohio courts are among those more likely to enforce noncompete agreements, says Kirila. The original ruling would have most affected companies that depend on sales and use noncompetes to protect their customer base when employees depart.

“Reconsideration is so rare a remedy,” says Kirila. Still, she recommends companies take the opportunity to include successor language in noncompetes. “It’s still very important to include the appropriate successor.”

Reprinted from the January 2013 issue of Columbus C.E.O. Copyright © Columbus C.E.O.