Opinion ID: 2575254
Heading Depth: 1
Heading Rank: 5

Heading: Traffic Control is a narrow decision based on the law of contract

Text: HDS asserts that Traffic Control's nonassignability rule is grounded in the common law of contractual assignments and, therefore, does not control whether a restrictive covenant may be validly acquired in the context of a statutory merger. In view of Traffic Control's discrete facts and narrow reasoning, we agree. Rather than support a comprehensive inquiry into different types of corporate transactions and their various consequences for assignments, Traffic Control's narrow set of factswhich involved the attempted assignment by a selling company of a noncompetition covenant under an asset purchase agreementsupported a much more limited inquiry, namely, whether the noncompetition covenant passed to the acquiring company under an asset purchase agreement without the employee's consent. Id. at 169-71, 87 P.3d at 1055-56. Nevertheless, despite the narrow facts before it, the court framed its inquiry somewhat generically as whether a noncompetition covenant was assignable in a corporate sale, id. at 169, 87 P.3d at 1055, and, even more expansively, as whether the covenant was assignable through the medium of an asset sale ( or otherwise ). Id. at 172, 87 P.3d at 1057 (emphasis added). However, by seeming to treat an asset purchase as indistinguishable from other corporate transactions, the court's inquiry in Traffic Control was framed as if its restrictive rule would apply in any transactional context, which is the principal source of confusion underlying these certified questions. As a result, we have been asked to determine the significance of this apparent incongruity i.e., whether, despite its broadly framed inquiry, Traffic Control is nonetheless limited to asset purchase transactions. In this regard, we agree with HDS that the limited scope of Traffic Control's rule of nonassignability is betrayed by the nature of the court's reasoning and the narrowness of its concerns. In Traffic Control, the court reasoned that because the covenants are personal in nature [1] and replacing a former employer with another obligee could fundamentally change the nature of an employee's obligation, noncompetition covenants could not be assigned without employee consent. Id. at 174-75, 87 P.3d at 1058-59. Notably, by conditioning assignability on consent, Traffic Control protects against unbargained-for changes in the scope of the restraint barring a covenanting employee from competing with his or her former employer. See id. at 174, 87 P.3d at 1058. In this way, the rule of Traffic Control echoes the basic policy in the law of contractual assignments 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. See Munchak Corporation v. Cunningham, 457 F.2d 721, 725-26 (4th Cir. 1972); Roeder v. Ferrell-Duncan Clinic, Inc., 155 S.W.3d 76, 89 (Mo.Ct.App.2004). Carrying this policy further, beyond requiring employee consent as a general matter, Traffic Control imposes two additional conditions to a valid assignment: an express assignability clause negotiated at arm's length and separate consideration. Id. at 175, 87 P.3d at 1059. As the court explained, the intended purpose of these conditions is to place[] the burden on the employer to seek assignability and adequately compensate[] the party with the lesser bargaining power for the possibility that a stranger to the covenant may ultimately assume the right to its enforcement. Id. Given this reasoning, which reveals a single-minded concern with preserving an employee's individualized choice to covenant not to compete with a particular employer, we conclude that Traffic Control's rule of nonassignability stands for the general proposition, grounded in the law of contractual assignments, that personal services contracts are not assignable absent consent. See Restatement (Second) of Contracts § 317 (1981); 29 Richard A. Lord, Williston on Contracts § 74:10 (4th ed.2003); 6 Am.Jur.2d Assignments § 15 (2008); 6A C.J.S. Assignments § 32 (2004); see, e.g., Sisco v. Empiregas, Inc. of Belle Mina, 286 Ala. 72, 237 So.2d 463, 466-67 (1970); SDL Enterprises, Inc. v. DeReamer, 683 N.E.2d 1347, 1349-50 (Ind.Ct.App.1997); Clark v. Shelton, 584 P.2d 875, 877 (Utah 1978). As a protection under the law of contract, the rule therefore logically applies in the contractual setting of an asset purchase transaction because, in an asset purchase, the transaction introduces into the equation an entirely different entity, the acquiring business. Corporate Exp. Office Products v. Phillips, 847 So.2d 406, 412 (Fla.2003). However, despite the rule's natural affinity to asset purchases, Bymoen contends that Traffic Control's prohibition on assignments without consent can be generalized to other forms of corporate transactions, including mergers. As discussed below, we disagree.