Many employers require certain of their employees to execute non-competition agreements as a condition of employment at the time of hire. Similarly, in many business acquisitions there is an agreement by the seller of a company not to compete with the purchasing business for a period. While courts closely scrutinize non-competition agreements in the context of employment, they offer much greater latitude in the context of the sale of a business. Which standard applies is not always clear, however.
In the recent case of Progressive Technologies v. Chaffin Holdings, Inc., 33 F.4th 481 (8th Cir. 2022), the U.S. Court of Appeals for the Eighth Circuit analyzed whether to apply the employment standard or the sale of business standard to a non-competition agreement. The case involved an asset purchase agreement, an employment agreement, and a non-competition agreement.
In the asset purchase agreement, the plaintiff, Progressive, agreed to pay almost $2 million over three years to purchase the defendant’s business, Chaffin Holdings, Inc. The court did not elaborate as to whether the asset purchase agreement contained any restrictive covenants. The employment agreement, which provided for employment for one year followed by at-will employment for an indefinite period, required Chaffin to assist with new sales and transition relationships to Progressive. Following the one-year term, Chaffin remained employed for five and a half years, at which time Progressive terminated his employment.