Fitness Experience, Inc. v. TFC Fitness Equipment, Inc.

United States District Court for the Northern District of Ohio · 2004 · Corporations

355 F. Supp. 2d 877 (2004)

Updated August 22, 2026

Corporationsnon-compete agreementsasset acquisitionassignmentnovationemployee duty of loyaltytortious interferenceasset purchase

Facts

Fitness Experience acquired Exercare's assets through an asset acquisition agreement that purported to include Exercare employees' non-compete agreements. Several former Exercare employees continued working for Fitness Experience after the acquisition, then resigned, formed TFC Fitness, and later hired additional former Fitness Experience employees. The non-compete agreements were signed with Exercare, referred specifically to Exercare, and limited competition within stated distances of Exercare locations. Fitness Experience sought to enforce those agreements and also claimed that certain employees breached their duty of loyalty by planning a competing business while still employed.

Issue

Whether Fitness Experience, as purchaser of Exercare's assets, could enforce Exercare's employee non-compete agreements through assignment or novation. Also, whether the employees' pre-resignation planning for a competing business constituted a breach of the duty of loyalty, and whether TFC Fitness tortiously interfered with Fitness Experience's contractual or business relationships.

Rule

Under Ohio law, a non-compete agreement silent as to assignability is not presumed assignable; courts determine assignability by giving controlling effect to the parties' intent, primarily by asking whether the covenant's language indicates assignment was contemplated and whether assignability is necessary to protect the goodwill of the business being sold, while strictly construing such covenants in favor of competition and against enforcement. A novation requires a clear and definite intent by all parties to extinguish the original obligation and substitute a new one, and it cannot be presumed from continued employment alone. An employee breaches the duty of loyalty by competing with a present employer, but merely preparing to compete is insufficient.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Prairie Motion, a retailer of home office furniture with stores in Columbus and Cincinnati, bought the assets of Lakefront Deskworks. Several store managers had signed covenants stating that for 12 months after leaving employment they would not compete with "Lakefront Deskworks" within 100 miles of the nearest "Lakefront Deskworks showroom," and the covenants said nothing about assignment.

If Prairie Motion sues a former Lakefront manager to enforce the covenant after an asset purchase, which is the strongest argument against enforcement under the governing rule?

Explanation. When a non-compete is silent on assignability, the court does not presume assignability. It gives controlling effect to the parties' intent, primarily asking whether the covenant's language indicates assignment was contemplated and whether assignment is necessary to protect goodwill. A covenant tied specifically to the original employer and its locations cuts against assignment. The majority rejected categorical rules that non-competes are never assignable or always require employee consent. (Derived from Fitness Experience, Inc. v. TFC Fitness Equipment, Inc. (2004).)