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Taking Stock of Non-Competition Agreements – Assets to Consider When Purchasing a Company

Written by Gauri Punjabi

When a company evaluates a potential acquisition target, employment agreements and non-competition agreements might not top the list of assets and liabilities it considers. A recent decision from a federal court in Florida reminds us, however, that such agreements (and the rights and obligations contained within them) are assets and liabilities which can transfer to, and be enforced by, the purchaser. In Thyssenkrupp Elevator Corp. v. Hubbard, the court held that the right to enforce the defendant’s employment agreement (which included a non-competition provision) had transferred to the plaintiff via a stock purchase, even though the restrictive covenants had not been specifically disclosed during the purchase as a material agreement. Of course, an asset transaction might result in a different conclusion because absent a purchase or the assumption of a liability, contractual rights and obligations do not necessarily transfer to a purchaser. These principles remind us that in the acquisition context, it is critical to inquire about the existence of employment agreements and non-competition agreements and to determine in advance who benefits from those assets and who bears those liabilities.

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