Court says buyer of assets of business can enforce noncompetition agreement seller had with former employee

Seller, based in Billerica, Massachusetts (20 miles NNW of Boston) manufactured computer peripheral equipment.

Former Seller Employee started working at Seller in 1982. He was promoted several times over the course of his employment, eventually becoming program manager in the sales department. That position entailed responsibility for the largest and most important of Seller’s accounts.

Accordingly, in 1997, Former Seller Employee was required to sign a non-compete and non-solicitation agreement.

Buyer, based in Tucson, Arizona, through its subsidiaries, manufactures cable assemblies, wire harnesses, and electro-mechanical assemblies.

In 2014, Seller entered into an asset purchase agreement with Buyer. Pursuant to the asset purchase agreement, Seller sold its assets, including its tradename to a Buyer subsidiary.

In 2016, Former Seller Employee left his job with Buyer and was hired as a general manager by Competitor. Competitor is a Salem, New Hampshire company, that provides manufactured electronics assembly services for a range of industries and is a competitor with the Seller business purchased by Buyer.

Thereafter, Buyer sued Former Seller Employee, in part for breach of his agreement to not compete against the Seller business. Former Seller Employee convinced the trial court that Buyer had no right to enforce the noncompetition agreement he entered into with Seller because Buyer did not buy the noncompetition agreement from Seller. The trial court agreed with Former Seller Employee and Buyer appealed.

The New Hampshire Supreme Court reversed, holding that Buyer purchased the noncompetition agreement and had a right to enforce it because under the asset purchase agreement, Seller sold all its contracts to Buyer.

This case is referred to as Atronix, Inc. v. Morris, No. 2017-0318, Supreme Court of New Hampshire (Opinion Issued: October 23, 2018).

Comment. No surprise in the outcome. A buyer can purchase  a seller’s contracts.

However, a buyer needs to check each contract to see if there is a prohibition on assignment or whether assignment requires the consent of the other party to the contract. Also, there are certain contracts that may require consent of the other party even if the contract itself does not require that. This is generally the case when the seller is assigning intellectual property licenses to a buyer.

Finally, some states, like California, will not enforce a noncompetition agreement, unless given as part of a sale of a business.

By John McCauley: I help people start, grow, buy and sell their businesses.

Email: jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291

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Posted in Assignment, assignment of contracts, covenant not to compete

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