Discover the intricacies of enforcing arbitration provisions in employment agreements post-acquisition in this detailed M&A legal blog. Delve into a real-world case where a major chipmaker’s asset acquisition led to a legal battle over age discrimination and disability law violations. Learn how the court’s decision impacts employment agreements, the enforceability of arbitration provisions, and the transfer of contractual rights under corporate law. This blog is a must-read for M&A professionals, legal experts, and business leaders navigating the complexities of asset acquisitions and employment law.
M&A Stories
July 16, 2024
In mergers and acquisitions, buyers often choose to purchase a company’s assets rather than its equity to avoid assuming all its liabilities. This practice was exemplified in a recent case involving a $6 billion asset acquisition by a major chipmaker of a smaller San Jose-based rival in 2018. The transaction included the seller’s employment agreements, and a senior sales manager’s agreement contained an arbitration provision.
The buyer terminated the senior sales manager in 2023, citing the elimination of his position. The 67-year-old employee, suspecting the termination was due to his serious heart condition that required multiple hospitalizations, filed a lawsuit against the buyer in a California federal district court, alleging age discrimination and violation of disability laws.
The buyer moved to stay the court proceedings and compel arbitration, relying on the arbitration provision in the employment agreement. The employee had signed both the employment and arbitration agreements while with the seller.
The court ruled that the arbitration provision clearly covered the former employee’s claims. The employee argued that the arbitration provision was not binding since the seller did not sign the employment agreement. The court stated that only evidence of the employer’s intent to be bound was necessary, which was present in this case, though not explicitly detailed in the judge’s opinion.
The employee also contended that the arbitration provision was unenforceable by the buyer because the employment agreement was with the seller when it was a corporation. The seller had since reorganized into a limited liability company (LLC) before the asset purchase. The court clarified that under Delaware corporate law, the rights and obligations of the predecessor corporation’s contracts automatically transfer to the successor LLC.
Lastly, the employee argued that the arbitration agreement was unfair. The court disagreed, noting that the arbitration agreement explicitly excluded disputes that cannot be legally subjected to arbitration.
A key takeaway for employers is the importance of signing employment agreements to avoid similar disputes.
Case Reference: Fiorentine v. Marvell Semiconductor Inc., Case No. 24-cv-01136-MMC, United States District Court, N.D. California, (June 14, 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connectingwith business owners management, as well as professionals who share an interest in the complexities of M&A law.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Podcasts https://www.buzzsprout.com/2142689/12339043
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
Legal Disclaimer
The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.
Recent Comments