Maryland trial court enforces employment covenant as asset of surviving company
In National Instrument, LLC v. Braithwaite, the Circuit Court for Baltimore City held that a non-compete agreement was enforceable, post merger, against an employee by the surviving employer entity.
The Court held that while the non-compete contract was a personal services contract, the prohibition on the assignment of personal services contracts (without consent) did not apply based upon other principles. The surviving employer, National Instrument LLC, merged with the predecessor entity NIC; there was no assignment. The non-compete contract was an asset which was statutorily merged into the new entity under Maryland corporate law (MD Code, Corporations and Associations §§ 3-114, 1-101(d)) by operation of law.
The Court held that this merger and transfer of assets occurred as an operation of law, not an assignment. The Court also noted prior decisions in other jurisdictions where mere corporate reorganizations were held not violative of the assignment principles related to personal service contracts. Additionally, the Court noted that such contracts are enforceable where there is an assignment “if there has been no change in the employee’s duties and obligations as a result of the merger, and/or the employee fails to object to the merger and continues to accept the benefits of employment with the successor”. Opinion at p. 9.
Decisions of Maryland's Business and Technology Case Management Program can be found at www.courts.state.md.us/businesstech/opinions.html.
