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In a unanimous pro-business decision, the Florida Supreme Court has ruled that corporations that acquire other companies through stock buyouts or mergers may enforce noncompete agreements reached under the previous management. In Corporate Express Office Products Inc. v. Doug Phillips, the high court ruled that corporations may bar employees from quitting and setting up shop within the same market under noncompete agreements they signed with prior employers. The Florida Supreme Court ruled that it was not necessary for noncompete agreements signed before 1996 to include an assignment clause in order for a new corporation to enforce its terms. An assignment clause would have indicated that the contract was binding with the employer’s successors. “A foundation of corporate law is that, unlike a partnership or sole proprietorship, the existence of a corporate entity is not affected by changes of its ownership or changes in management,” Justice Barbara Pariente wrote for the court. Employment law experts said the decision reassures Florida corporations that acquire other companies that employees who accompany mergers are more likely to stay. “If you are merging, purchasing or selling stock with a company with pre-1996 noncompetes with employees, you can rest easy that the employees should be bound to the noncompetes as a matter of law,” said Heather Gatley, vice chairman of the labor and employment department at Steel Hector & Davis in Miami. The ruling, handed down April 17, is limited to noncompete agreements executed before 1996. The law has since been changed to require a noncompete agreement to expressly state that it can be enforced by a successor or assignee. The case arose after Corporate Express Office Products Inc. filed suit in Orange Circuit Court against three sale representatives who quit in 2000 after their former companies were taken over by Corporate Express. Headquartered in Broomfield, Colo., Corporate Express is one of the world’s largest business-to-business suppliers of office and computer products with operations in more than 20 countries and 300 facilities throughout the United States. Two of the sales representatives, Doug Phillips and Lori Farrell, had worked for an Orlando, Fla.-based company called Bishop Office Furniture Co. The other representative, Edward Goff, worked at Ciera Office Products in Ocala. Phillips and Farrell had signed contracts with Bishop in 1986 and 1989 respectively, agreeing not to work for a competing company in the surrounding seven counties for one year following their termination of employment. Goff had signed a similar noncompete agreement with Ciera in 1986. In the late 1990s, Corporate Express acquired both Bishop and Ciera through a series of stock buyouts, asset purchases and mergers. Unhappy with the new corporate culture, Phillips, Farrell and Goff left in the fall of 2000 to open an Orlando branch of Commercial Design Services Inc., a Tampa, Fla.-based office supply company. The three sales representatives claimed they quit because Corporate Express started refusing to reimburse employees for business-related travel expenses, which cut into their annual commissions. They also alleged they weren’t given enough support staff and were burdened by corporate cutbacks. In November 2000, Corporate Express sued Phillips, Farrell, Goff and their new employer, alleging unlawful use of trade secrets and breach of contract. As part of the suit, Corporate Express sought to keep the sales representatives from continuing to work for Commercial Design. The purpose of a noncompete agreement is to protect a company from investing in its employees by providing training and overhead only to lose employees, their expertise and customers to a competitor. Corporate Express alleged that the defendants were still bound by noncompete agreements they had signed with their prior employers. Corporate Express claimed it inherited the right to enforce these agreements by the nature of its acquisition of the two companies. “When there’s a merger, there’s no dissolution,” said Corporate Express attorney Allan Weitzman, a partner at Proskauer Rose in Boca Raton, Fla.. “Once the merger took place, Bishop and Ciera lived on in the body of the surviving entity.” In 1997, Corporate Express of the South Inc. had purchased 100 percent of Bishop’s stock. A year later, Bishop was merged into CES, which later was merged into its parent company, Corporate Express of the East. It subsequently changed its name to Corporate Express Office Products Inc. In 1996, Ciera sold its assets to Corporate Express of the South. At the time, Goff executed a new noncompete agreement with CES, but did not sign any additional consent forms when CES merged with Corporate Express of the East and subsequently changed its name. Phillips, Farrell and Goff argued that Corporate Express had no right to enforce the noncompete agreements because it was not their employer at the time they signed them. “Florida law unequivocally holds that noncompete agreements executed by employees in favor of their former employer are not enforceable by a successor employer absent consent to such enforcement,” their attorneys, Keith White and Kimberly Doud of Broad and Cassel in Orlando, wrote in briefs to the court. But in February 2001, Orange Circuit Judge George Sprinkel IV granted the injunction barring the defendants from continuing to work for their new company. Sprinkel based his ruling on a 1999 case in the 1st District Court of Appeal, Sears Termite & Pest Control Inc. v. Arnold. That appellate court in Tallahassee, Fla., held that a 100 percent stock purchase or merger did not dissolve the original corporate entity or change its rights and liabilities, including its ability to enforce noncompete agreements. The defendants appealed to the 5th District Court of Appeal, which reversed Sprinkel’s decision in August 2001. The 5th DCA, based in Daytona Beach, Fla., said that the nature of corporate mergers and acquisitions did not apply to noncompete agreements. Because the employees signed noncompete agreements based on their relationship with a specific employer, that loyalty couldn’t be automatically transferred to a new employer, the 5th District Court of Appeal said. “In Florida, noncompete agreements are considered personal services contracts and are generally not assignable without the parties’ consent or ratification,” the 5th DCA said. The Florida Supreme Court disagreed, adopting the rationale in Sears Termite and claiming that the 5th District Court of Appeal had mistakenly based its ruling on cases pertaining to partnership law. Unlike partnerships, however, a corporate entity is not dissolved by a change in ownership, the Florida Supreme Court said. The Florida Supreme Court’s ruling is in line with a trend toward making it easier for Florida employers to enforce noncompete agreements, said employment attorney Joseph Santoro, who represented Corporate Express with Weitzman. “As an employee, you need to pay attention to what you’re signing when you’re hired,” said Santoro, an associate at Gunster, Yoakley & Stewart in West Palm Beach, Fla. “The courts and the Legislature have set the tone that you’ve got to be prepared to live up to your obligation.” The 1996 law, Statute 542.335, prohibits the courts from considering the employee’s hardship when deciding whether to enforce his or her covenants with a former employer. Employees can no longer argue that their noncompete agreements shouldn’t be enforced because they were unhappy with a change in corporate climate or left with no other way to make a living following their termination. To invalidate the agreement, the employee must show the terms of the agreement were unreasonable or executed for reasons other than a legitimate business purpose. “The new statute simplified the analysis and took the emotion out of these cases,” Santoro said. The Florida Supreme Court has remanded the Corporate Express case to the 5th District Court of Appeal to reinstate the injunction. Corporate Express will now resume seeking damages based on its unlawful use of trade secrets and breach of contract claims against the defendants.

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