Non-Competition Agreement Merger: What You Need To Know
When two companies merge, there are a lot of legal and operational issues that need to be sorted out. One of these issues is the non-competition agreement that employees of both companies may have signed. These agreements are designed to prohibit employees from leaving the company and immediately going to work for a competitor. But what happens when two companies merge and have overlapping non-competition agreements?
Understanding Non-Competition Agreements
Non-competition agreements, also known as non-compete clauses, are contracts that prevent employees from working for a competitor or starting their own competing business within a specified period of time after leaving their current employer. These agreements are commonly used in industries where employees have access to sensitive information or trade secrets that could be used to benefit a competing company.
Non-competition agreements are legal in most states, but the specifics of these agreements vary by state. Some states prohibit non-compete clauses altogether, while others enforce them to varying degrees.
Non-Competition Agreements in Mergers
In a merger, two companies come together to form a single entity. When this happens, the non-competition agreements of both companies continue to be in effect until they expire or are terminated. If the two companies have overlapping non-competition agreements, this can create legal and operational issues for the new company.
To avoid potential legal issues, companies that are planning to merge should review their non-competition agreements and identify any potential conflicts. If there are conflicting agreements, the companies may need to renegotiate the terms of these agreements or terminate them altogether.
Enforcing Non-Competition Agreements
Enforcing non-competition agreements can be challenging, even under the best of circumstances. Courts may be hesitant to enforce these agreements if they are seen as overly restrictive or if they would prevent an employee from earning a livelihood.
When two companies merge and have overlapping non-competition agreements, the new company may need to be particularly careful in enforcing these agreements. If the company takes action against an employee who is bound by conflicting agreements, it may be seen as unfair or overly restrictive.
Employers should also be aware that non-competition agreements may be unenforceable in some states, or may be subject to specific restrictions. For example, some states require that non-compete clauses be limited in scope, duration, and geographical area to be considered valid.
Mergers can be complicated, and non-competition agreements only add to the complexity. Companies that are planning to merge should take the time to review their non-competition agreements and identify any potential conflicts. If there are conflicts, the companies may need to renegotiate or terminate these agreements to avoid legal and operational issues down the line. Ultimately, the key to successfully navigating non-competition agreements in mergers is to be aware of the legal requirements and to be proactive in addressing any potential conflicts.