By Brandi O. Brown, J.D.
Two employees who left to work for a competitor after being offered fewer hours by a successor business that purchased their employer could be found liable to the successor, which sued them for breach of their noncompete and confidentiality agreements, breach of fiduciary duty, and tortious interference. The employees won summary judgment at the district court level by arguing they had not consented to assignment of those agreements. But the Eighth Circuit reversed, concluding that the Missouri Supreme Court would have permitted, without their consent, assignment of the agreements they signed with the former employer (Symphony Diagnostic Services No. 1 Inc. d/b/a MobilexUSA v. Greenbaum
, July 6, 2016, Kelly, J.).
Signed noncompete agreements.
The employees worked full-time as mobile x-ray technicians for Ozark Mobile Imaging before its sale to MobilexUSA in 2012. Both employees signed a noncompete and a confidentiality agreement with their former employer. The noncompetes provided that for two years after employment and within a specific geographic area the employees would not directly or indirectly engage in the mobile diagnostic business or be connected with an employer engaging in that business.
Successor company sues.
Mobilex, after acquiring Ozark, allegedly offered each of the employees part-time, rather than full-time, work with no guaranteed benefits. Both refused the offer and took positions as mobile x-ray techs with a competitor. Mobilex filed suit against the two employees in a federal district court in Missouri, alleging breach of contract, breach of fiduciary duty, and tortious interference with a business relationship. Explaining that the success of the claims depended on whether the agreements signed by the employees were assignable to the asset purchaser without the employees' consent, which undisputedly had not been provided, the court found that the agreements were not assignable and entered summary judgment in the employees' favor.
Missouri predicted to apply "majority rule."
On appeal, the Eighth Circuit considered whether, under Missouri law, assignment without consent was possible. No Missouri Supreme Court or intermediate court had "squarely addressed the question", but the appeals court had dealt with a similar state decisional law gap in a prior case. In that case, Stuart C. Irby Co. v. Tipton
, the court had been tasked with predicting how the Arkansas Supreme Court would handle the matter and concluded that the state court would adopt the "majority rule" that such noncompete covenants could be assigned to a successor employer. That decision, the court explained, "supplies the default forecast of what a state’s highest court would do when state law is silent, and therefore controls this case." In fact, the assignment decision was reached despite the skepticism Arkansas courts show toward such covenants, and Missouri courts did not share that skepticism. Thus, the court predicted that Missouri's high court would permit assignment without consent.
Not personal services contracts.
Although the district court believed that a different result was necessary under a Missouri Court of Appeals decision, Roeder v. Ferrell-Duncan Clinic, Inc.
, the Eighth Circuit distinguished this case because it did not involve a personal services contract. Neither of the "free-standing" agreements signed by the employees in this case "formed part of a larger employment agreement" requiring them to provide personal services for their previous employer.
Although the employees argued that their agreements were personal services contracts, the court disagreed. The court explained a crucial difference: While a personal services contract "requires affirmative actions by the employee" a noncompete only requires the employee to "refrain
from certain actions." The fact that the employees signed the agreements in exchange for continued employment, the court explained, did not make them personal services contracts. To conclude otherwise "would lead to anomalous results." Under Missouri law, if the purchaser had acquired the former employer by purchasing its stock, rather than its assets, there would have been no bar under state law.
Make argument on remand.
Although it might "make sense to preclude assignment" in the absence of consent if the assignment "would materially change the obligations of the employee," or if the employee only agreed to it because of qualities that were specific to the employer, the court was not faced with those circumstances here. In this case, the agreements only precluded the employees from employment in the field of medical diagnostics or from soliciting business from certain clients. "That obligation is no different whether enforced by" their former employer or the asset purchaser.
A reasonable jury could find that the employees also did not agree to the agreements because of their former employer's "unique characteristics." Although the employees argued that the employment they were offered with the purchaser was much less favorable to them than what they had before by overly restricting their ability to obtain future employment, the court explained that such concerns "would not be addressed by imposing a rule against assigning non-compete agreements without consent." To the extent that they make such an argument, the court explained, they were free to challenge the agreements on that basis on remand.