Tuesday, April 7, 2009

Arizona Follows Majority Rule on Assignment of Restrictive Covenants (Sogeti USA v. Scariano)

One of the most common defenses raised by employees who try to break a non-compete is based on standing. Frequently, this arises when an employee signs a non-compete with one employer, who is later acquired by a successor entity. If the employer departs and competes, the successor entity will often try to enforce an agreement it never signed. Many times, the non-compete is silent as to whether the rights, duties and obligations are assignable to the successor.

In Sogeti USA v. Scariano, a federal district court addressed this issue as one of first impression under Arizona law. The court followed the majority of jurisdictions which hold that assignments of non-compete agreements are permissible even if: (a) the contract is silent regarding assignment; and (b) there has been no affirmative consent to the assignment by the employee.

Other jurisdictions following this rule include Illinois, New Jersey, and Kansas. States which hold otherwise, and require an assignability clause or consent by the employee, include Pennsylvania and Nevada. In these minority of states, courts focus on the "personal services" element to the contract and the employer's ability to write an assignment clause into the contract.

A couple of important caveats should be mentioned. First, an employee may impliedly consent to the assignment if he knows of it and continues in his employment for a significant period of time. Second, the rules on assignment are different if the business transaction is a merger rather than an acquisition. Business corporation statutes, not contract law, will govern the contractual obligations of the merged entity.


Court: United States District Court for the District of Arizona
Opinion Date: 3/27/09
Cite: Sogeti USA, LLC v. Scariano, 2009 U.S. Dist. LEXIS 25658 (D. Ariz. Mar. 27, 2009)
Favors: Employer
Law: Arizona

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