Is a non-compete agreement valid after a company is spun-off from parent company?
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Is a non-compete agreement valid after a company is spun-off from parent company?
I was hired at a company and required to sign a non-compete agreement. Last November the parent company spun us off and we became our own publicly trade company. The company name changed along with the name on our paychecks. Would the non-compete agreement still be valid since it was signed with the parent company whom we are no longer apart of?
Asked on May 1, 2012 under Business Law, Florida
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 11 years ago | Contributor
The non-compete could still be valid. First, it would be valid if it was specifically assigned to the new entity. While as a general matter, a contract only binds the parties to it, most contracts, including an employee's non-competition agreement, can be assigned, or transferred, from one party to another. Thus, as part of the spin-off, the parent company could have assigned the contractual rights--including the right to not have its employees compete on termination of employment--to the new entity. It is likely this was done.
Second, a name change, by itself, does not invalidate contracts--company names change frequently, for example, without voiding or terminating contracts. You signed your noncompete with your employer; while ultimate ownership may have changed, you are still, from what you write, doing the same job for the same employer, just under a different name and ownership structure. It is very likely that a court would rule that the company you are working for IS the other party to the noncompete, and the change in ownership structure and name does not alter that--thus, that the non-compete is still in force.
Therefore, it most likely that your non-compeition agreement is still in force.
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