Purchaser of Business Assets Liable Under WARN Act

In Day v. Celadon Trucking Servs., Inc., the 8 ^th Circuit Court of Appeals (covers Missouri) found that a company that bought a trucking business's assets under a purchase contract, which stated that the seller must notify employees of discharge under the Worker Adjustment and Retraining Notification (WARN) Act, was liable when the employees did not receive such notice.  The 8 ^th Circuit held that the purchasing company, Celadon, was liable under the WARN Act's application to the sale of a business "as a going concern."  While typically a purchaser of assets would not assume the seller's responsibility, the agreement between the parties in this case stated that the purchasing company (Celadon) would merge the purchased company's business into its own.  In addition, the employees of the purchased company continued to work after the closing date of the sale, so the WARN Act considered them Celadon employees for purposes of its notice requirements.  Therefore, Celadon (the purchasing company) could not avoid WARN liability even though the contract terms were to the contrary.

 

Take-Away:   Many laws, like the WARN Act, cannot be avoided with language in a contract.  Therefore, employers must ensure that they are complying with the WARN Act and not rely on contract language that does not ultimately remove duties imposed by the statute.

 

Noncompete Agreement Signed By Employee of Purchased Company May Be Enforceable by Purchasing Company

The 8 ^th Circuit Court of Appeals, which covers Missouri, held in Symphony Diagnostic Services No. 1, Inc. (d/b/a MobilexUSA) v. Greenbaum that noncompete agreements signed by former employees of a business that was sold as part of an asset purchase agreement are enforceable by the purchasing company under Missouri law.  Two former mobile X-ray technicians who worked for Ozark Mobile Imaging, which was sold to Mobilex, went to work for a competitor of Mobilex after rejecting offers of employment from Mobilex.  Mobilex then sued both former employees to enforce the noncompete and confidentiality agreements they previously signed while working for Ozark Mobile Imaging.  The U.S. District Court for the Western District of Missouri ruled in favor of the employees finding that a personal services contract cannot be assigned to a subsequent employer under Missouri law without the employee's contemporaneous consent, but the 8 ^th Circuit reversed the decision.  Although the Missouri Supreme Court has held previously that personal services contracts, which involve "special knowledge, skill or a relation of personal confidence" are not assignable without the consent of both parties, the 8 ^th Circuit held that this case was distinguishable.  According to the 8 ^th Circuit, there is a "crucial difference between a personal services contract and a noncompete agreement," which is that a personal services contract "requires affirmative actions by the employee, whereas the [noncompete agreement] requires only that they refrain from certain actions."  The 8 ^th Circuit found that the fact that the employees signed the noncompete agreements in exchange for continued, at-will employment did not turn the agreements into personal services contracts.  The 8 ^th Circuit sent the case back to the district court.

Take-Away:   Enforceability of noncompete agreements is different from state to state.  Therefore, employers that operate in multiple states should review state-specific laws regarding noncompete agreements before assuming whether or not they are enforceable.