828 F.3d 643
8th Cir.2016Background
- Ozark Mobile Imaging employees Kimberly Greenbaum and Josephine Tabanag signed separate non-compete and confidentiality agreements with Ozark while employed there.
- Mobilex acquired Ozark by asset purchase in December 2012; Mobilex offered both employees new, part-time positions which they declined.
- Both employees then began working for BioTech X-Ray, a competitor; Mobilex sued for breach of the non-compete and confidentiality agreements.
- The district court granted summary judgment for Greenbaum and Tabanag, holding that personal services contracts are not assignable without the employee’s contemporaneous consent and concluding the agreements required such consent.
- The Eighth Circuit considered whether the non-compete and confidentiality agreements were assignable under Missouri law without employee consent and whether they constituted non-assignable personal services contracts.
Issues
| Issue | Plaintiff's Argument (Mobilex) | Defendant's Argument (Greenbaum/Tabanag) | Held |
|---|---|---|---|
| Whether non-compete/confidentiality agreements signed by employees are assignable without the employee’s contemporaneous consent after an asset sale | Assignments are valid; Mobilex acquired Ozark’s rights and can enforce preexisting covenants | Agreements are personal services contracts tied to employer; assignment without consent is invalid | Agreements are not personal services contracts and may be assigned without contemporaneous consent under Missouri law |
| Whether the agreements here are personal services contracts (non-assignable) | The agreements were in consideration of continued employment, so they are part of personal services arrangements | Non-compete/confidentiality impose only negative obligations (restrain conduct), not affirmative personal services | Not personal services contracts; they only restrict actions and thus are assignable |
| Whether asset purchase (vs. stock purchase/merger) prevents enforcement of preexisting covenants | Mobilex: form of acquisition should not change enforceability of covenants | Defendants: asset purchase severed the contractual relationship required employee consent for assignment | Court: No principled reason asset vs. stock purchase should alter assignability; enforcement allowed after assignment |
| Whether assignment could be blocked because post-acquisition employer materially changed obligations or employee relied on employer’s unique qualities | Mobilex: no material change in obligations; geographic/scope restrictions unchanged | Defs: post-acquisition offers were materially less favorable (part-time, fewer benefits) and employee agreed because of Ozark’s characteristics | Court: If assignment would materially change obligations or employee relied on unique employer qualities, assignment might be disallowed; but on these facts, a jury could find no such reliance — remand for further proceedings |
Key Cases Cited
- Stuart C. Irby Co. v. Tipton, 796 F.3d 918 (8th Cir. 2015) (predicting state law would follow majority rule allowing assignment of non-competes to successor employer)
- Leonard v. Dorsey & Whitney, LLP, 553 F.3d 609 (8th Cir. 2009) (federal court bound by state supreme court decisions when applying state law)
- Roeder v. Ferrell-Duncan Clinic, Inc., 155 S.W.3d 76 (Mo. Ct. App. 2004) (personal services contracts involving special skill/confidence are not assignable without consent)
- Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835 (Mo. 2012) (Missouri balances employer and employee interests and enforces reasonable non-competes)
- Alexander & Alexander, Inc. v. Koelz, 722 S.W.2d 311 (Mo. Ct. App. 1986) (merged or successor entities can enforce pre-merger employment contracts)
- Managed Health Care Assocs. v. Kethan, 209 F.3d 923 (6th Cir. 2000) (distinguishing non-compete restraints from personal service contracts)
- Osage Glass, Inc. v. Donovan, 693 S.W.2d 71 (Mo. 1985) (non-compete enforcement can impermissibly limit realistic employment opportunities)