Nevada Supreme Court Rules That Restrictive Employment Agreements Acquired Through Mergers Are Not Subject To Nevada’s Strict Assignment Rule

In a decision that encourages cost efficient corporate mergers in Nevada, the Nevada Supreme Court in HD Supply Facilities Maintenance v. Bymoan, 2009 WL 1635924 (June 11, 2009) recently ruled in an en banc decision that restrictive employment agreements acquired through corporate mergers do not require a showing that the agreements’ assignment provisions were negotiated at arm’s length or are supported by separate consideration. 

The court clarified its previous decision in Traffic Control Servs. v. United Rentals, 120 Nev. 168, 172 (2004), which held that employee noncompetition agreements are nonassignable when acquired through an asset purchase transaction, absent an explicit assignment clause negotiated at arm’s length supported by separate consideration. The Traffic Control decision was based on the notion of “honoring an obligor’s choice to contract with only the original obligee, thereby ensuring that the obligor is not compelled to perform more than his or her original obligation.” Further, the decision supports the general proposition that personal services contract are not assignable absent consent. In its Traffic Control  ruling, the Nevada Supreme Court used broad language, leading some to believe that the nonassignability of employee noncompetition agreements extended to agreements acquired as the result of mergers as well as to those acquired through asset purchase transactions. 

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