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This all happens in Minnesota.

Employee E worked for company A and had standard noncompete agreement. Agreement has an assignment clause assigning rights to any successor. Company B buys most business units of company A and hires most employees. Seller of A starts new company N. E stays with seller of A and works for new company N. Assume it's clear that language of noncompete contract assigned to B all rights of all of A's employees who now work for B.

A was in the business of providing medical billing services to hospitals. E worked in that industry when hired by A. During employment E developed a product to detect fraud within hospitals and stopped working on billing and started working on the product. When B buys A, it only buys the billing business. Seller of A starts new business explicitly to sell fraud product and invites E to come along. There is an implied option for E to stay on and work for B, but B does not express interest in E and has no contact with E before the sale. Seller has an explicit new agreement with B (it is specific to seller the person) that seller will not engage in medical billing business. E has no new agreement.

Seller commences new business N. E has no new agreement or paperwork with N. Not even a tax form. N is a small company and does not provide health insurance but since E received benefits under his spouse's employer there was no change in status in that regard. The only change is that auto deposit pay checks were now from N.

Hospital who previously worked with seller at company A contacts seller, asking for consulting work on a billing problem. Because of seller's agreement with B, the consulting contract is written between hospital and B, with N working under a separate agreement with B. Basically N does all the work while B prints invoices and sends 50% of money to N.

Seller goes to hospital and brings E along for the consulting job. In the course of the work, hospital offers E a job. Not just a job, the job - the one that's being filled by the contract work. Counsel for hospital sees no problem with the offer as it relates to hospital's actions and let's assume that's a correct assessment. But what about E?

Is there any legal doctrine whereby E's agreement with A continued to apply to E in his work for company N? What about B? Do they have any standing to block E's going to work for a B's customer? My thinking here is that E technically has a noncompete agreement with B but perhaps there is a generally accepted public policy theory whereby employers can't enforce agreements against former employees especially under these facts.

Reasonable minds may suggest that neither B nor N have an interest in blocking the employment. But let's assume seller is pissed bc now E won't be available to develop product for N and B is pissed because the hiring stops the gravy train and cuts off future potential work.

  • Also, does the restraint survive the termination of employment? Commonly it will, with geographical and temporal limits, of course. – jimsug Apr 9 '16 at 4:24
  • @jimsug yes it survives after employment regardless of the cause - termination or voluntary departure. – jqning Apr 9 '16 at 4:32
  • "Assume it's clear that language of noncompete contract assigned to B all rights of all of A's employees who now work for B." I'm not quite understanding. E was an employee of A, but did not work for B. Did the deal mean that E had a noncompete with B or not? – David Thornley Nov 29 '18 at 23:22
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Is there any legal doctrine whereby E's agreement with A continued to apply to E in his work for company N?

No, because the parties to the non-compete agreement were Employee E and company A, not the human who owned and sold A.

What about B? Do they have any standing to block E's going to work for a B's customer?

No. My rationale is that the decisions you describe result in a waiver of the non-compete clause.

An employment relation between B and E never existed. Thus, the only vestige of B's non-compete rights binding E that could have been preserved stem from E's former employment at A. However, that vestige disappeared at the instant B --apropos of the hospital project-- waived its non-compete clause with N.

Given B's waiver with regard to N, N's failure to establish a non-compete clause with E enables the latter to conduct business with (or accept employment at) the hospital. If anything, B would have standing to sue N for negligence or related torts. But neither B nor N has any viable non-compete claims against E.

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