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What happens to my contract when my company is sold?

A friend of mine who works in television told me the other day that he believed his contract would be invalidated by the sale of his television station. He worried that he needed to begin looking for work, even though he would have had another year left on his operative deal. As I explained to him, in most cases, broadcast employment agreements provide language that anticipates just this sort of eventuality and, as a result, most contracts simply continue with the new owner. In my opinion, a station’s inventory of operative employment agreements comprises part of the “value” of what it is selling.

For employees with contracts, look at the “assignment” provision.

The general rule is that most business contracts are freely assignable (unless there is language to the contrary), except contracts which involve personal services or some sort of “confidential” relationship. This means that, in the usual case, a party to a contract may “assign” his rights and responsibilities to another, who will take his place in the contract. In the context of personal services, however, courts have traditionally been disinclined to allow a personal service provider to assign his responsibilities under a contract to another person, absent consent from the employer. For example, this means that a reporter working under a three-year deal typically cannot say that he is going to “assign” his duties under his employment agreement to some other wannabe reporter, without permission from the employer station. Makes sense, right? It would be like a TV star saying he wanted to assign his duty to perform to some low-level actor.  By contrast, the station usually CAN assign its responsibility to employ and to make payment to the reporter, unless there is language in the contract to the contrary (and there usually is not).

To resolve any ambiguity and to avoid any default rules from kicking into play, most employment agreements contain language dealing with this.

Here are four examples from different broadcast groups:

 

Assignment. This Agreement may not be assigned or transferred by Talent to any other person or entity without the prior written consent of Station. If Station enters into an agreement for the transfer of the license of Station, however, Talent agrees that this Agreement may be freely assigned by Station without the prior consent of Talent.

 

Assumption of Agreement by the Company’s Successors and Assignees. This Agreement is personal to Employee and shall not be assignable by Employee. The Company’s rights and obligations under this Agreement will inure to the benefit of and be enforceable by the Company’s successors and assignees.

 

Assignment. This Agreement is personal to Employee and may not be assigned in whole or in part, sold, transferred, or pledged by Employee. Employer may assign this Agreement to any affiliate or to a Buyer of the Station’s assets or FCC licenses.

 

Assignment. This Agreement is non-assignable by Employee and any purported assignment by Employee shall be void. This Agreement shall inure to the benefit of Company’s successors, assignees, and Affiliates, and Company and any subsequent assignee may freely assign this Agreement, in whole or in part, to any party, provided that such party assumes and agrees in writing to keep and perform all of the executory obligations of Company hereunder.

 

Every one of these provisions basically says that an employer can assign its duties under your contract to a buyer, but that you as the employee may not. The bottom line is that a new employer is going to step into the shoes of the old employer and your contract continues.

 

What about employees who have signed contracts without assignment provisions? This is unusual because an assignment provision is typically part of a drafter’s boilerplate. That said, stations are increasingly signing off-air or part-time personnel to simple short-form non-compete agreements, which may or may not include assignment provisions. What happens to these people when their stations are bought? My simple answer is that it is going to depend on what state you are in, as contract law differs from state to state.

 

A relatively recent Tennessee case held that a non-compete agreement was not a personal services agreement because “it does not require any party to perform personal services, but only to abstain from particular conduct.” Packers Supply Co. v. Weber, 2008 WL 1726103, at *4 (TN.App. Ct. 2008)(Managed Health Care Associates v. Kethan, 209 F.3d 923, 929 (6th Circuit 2000). As a result, they found that it was freely assignable. If you apply that reasoning to our scenario, it would follow that a TV station in Tennessee could assign its non-compete agreements to a buyer even though these agreements may be silent as to assignment.