In CDW, LLC, et al v. NETech Corporation, an Indiana federal district court ruled that a parent company cannot enforce the employment contracts of its subsidiary. Likewise, a subsidiary cannot enforce the employment contracts of its sister subsidiary.
Three salesman signed employment contracts with Berbee Information Networks Corporation. Those contracts included a non-competition clause prohibiting them from working for Berbee’s competitors for up to twelve months after leaving Berbee.
CDW, LLC purchased Berbee after the contracts were signed. CDW owned several subsidiaries that, like Berbee, were in the business of technology sales, but they served different markets. CDW transferred the three Berbee employees to another one of its subsidiaries – CDW Direct. The three employees all left CDW Direct at different times to work for NETech Corporation. While employed at NETech, they each received letters from an attorney for CDW alleging that they were in violation of the non-competition clauses of their employment contracts and demanding that they cease work for NETech.
The court held that Berbee and CDW Direct were distinct corporate entities, and therefore, neither CDW nor CDW Direct could enforce any provisions of Berbee’s employment contracts.
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