assignment to a competitor clause

Don’t Confuse Change of Control and Assignment Terms

• David Tollen
• September 11, 2020

An assignment clause governs whether and when a party can transfer the contract to someone else. Often, it covers what happens in a change of control: whether a party can assign the contract to its buyer if it gets merged into a company or completely bought out. But that doesn’t make it a change of control clause. Change of control terms don’t address assignment. They say whether a party can terminate if the other party goes through a merger or other change of control. And they sometimes address other change of control consequences.

Don’t confuse the two. In a contract about software or other IT, you should think through the issues raised by each. (Also, don’t confuse assignment of contracts with assignment of IP .)

Here’s an assignment clause:

Assignment. Neither party may assign this Agreement or any of its rights or obligations hereunder without the other’s express written consent, except that either party may assign this Agreement to the surviving party in a merger of that party into another entity or in an acquisition of all or substantially all its assets. No assignment becomes effective unless and until the assignee agrees in writing to be bound by all the assigning party’s obligations in this Agreement. Except to the extent forbidden in this Section __, this Agreement will be binding upon and inure to the benefit of the parties’ respective successors and assigns.

As you can see, that clause says no assignment is allowed, with one exception:

• Assignment to Surviving Entity in M&A: Under the clause above, a party can assign the contract to its buyer — the “surviving entity” — if it gets merged into another company or otherwise bought — in other words, if it ceases to exist through an M&A deal (or becomes an irrelevant shell company).

Consider the following additional issues for assignment clauses:

• Assignment to Affiliates: Can a party assign the contract to its sister companies, parents, and/or subs — a.k.a. its “Affiliates”?
• Assignment to Divested Entities: If a party spins off its key department or other business unit involved in the contract, can it assign the contract to that spun-off company — a.k.a. the “divested entity”? That’s particularly important in technology outsourcing deals and similar contracts. They often leave a customer department highly dependent on the provider’s services. If the customer can’t assign the contract to the divested entity, the spin-off won’t work; the new/divested company won’t be viable.
• Assignment to Competitors: If a party does get any assignment rights, can it assign to the other party’s competitors ? (If so, you’ve got to define “Competitor,” since the word alone can refer to almost any company.)
• All Assignments or None: The contract should usually say something about assignments. Otherwise, the law might allow all assignments. (Check your jurisdiction.) If so, your contracting partner could assign your agreement to someone totally unacceptable. (Most likely, though, your contracting partner would remain liable.) If none of the assignments suggested above fits, forbid all assignments.

Change of Control

Here’s a change of control clause:

Change of Control. If a party undergoes a Change of Control, the other party may terminate this Agreement on 30 days’ written notice. (“Change of Control” means a transaction or series of transactions by which more than 50% of the outstanding shares of the target company or beneficial ownership thereof are acquired within a 1-year period, other than by a person or entity that owned or had beneficial ownership of more than 50% of such outstanding shares before the close of such transactions(s).)

• Termination on Change of Control: A party can terminate if controlling ownership of the other party changes hands.

Change of control and assignment terms actually address opposite ownership changes. If an assignment clause addresses change of control, it says what happens if a party goes through an M&A deal and no longer exists (or becomes a shell company). A change of control clause, on the other hand, matters when the party subject to M&A does still exist . That party just has new owners (shareholders, etc.).

Consider the following additional issues for change of control clauses:

• Smaller Change of Ownership: The clause above defines “Change of Control” as any 50%-plus ownership shift. Does that set the bar too high? Should a 25% change authorize termination by the other party, or even less? In public companies and some private ones, new bosses can take control by acquiring far less than half the stock.
• No Right to Terminate: Should a change of control give any right to terminate, and if so, why? (Keep in mind, all that’s changed is the party’s owners — possibly irrelevant shareholders.)
• Divested Entity Rights: What if, again, a party spins off the department or business until involved in the deal? If that party can’t assign the contract to the divested entity, per the above, can it at least “sublicense” its rights to products or service, if it’s the customer? Or can it subcontract its performance obligations to the divested entity, if it’s the provider? Or maybe the contract should require that the other party sign an identical contract with the divested entity, at least for a short term.

Some of this text comes from the 3rd edition of The Tech Contracts Handbook , available to order (and review) from Amazon  here , or purchase directly from its publisher, the American Bar Association, here.

Want to do tech contracts better, faster, and with more confidence? Check out our training offerings here: https://www.techcontracts.com/training/ . Tech Contracts Academy has  options to fit every need and schedule: Comprehensive Tech Contracts M aster Classes™ (four on-line classes, two hours each), topical webinars (typically about an hour), customized in-house training (for just your team).   David Tollen is the founder of Tech Contracts Academy and our primary trainer. An attorney and also the founder of Sycamore Legal, P.C. , a boutique IT, IP, and privacy law firm in the San Francisco Bay Area, he also serves as an expert witness in litigation about software licenses, cloud computing agreements, and other IT contracts.

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Assignment clause defined.

Assignment clauses are legally binding provisions in contracts that give a party the chance to engage in a transfer of ownership or assign their contractual obligations and rights to a different contracting party.

In other words, an assignment clause can reassign contracts to another party. They can commonly be seen in contracts related to business purchases.

Here’s an article about assignment clauses.

Assignment Clause Explained

Assignment contracts are helpful when you need to maintain an ongoing obligation regardless of ownership. Some agreements have limitations or prohibitions on assignments, while other parties can freely enter into them.

Here’s another article about assignment clauses.

Purpose of Assignment Clause

The purpose of assignment clauses is to establish the terms around transferring contractual obligations. The Uniform Commercial Code (UCC) permits the enforceability of assignment clauses.

Assignment Clause Examples

Examples of assignment clauses include:

• Example 1 . A business closing or a change of control occurs
• Example 2 . New services providers taking over existing customer contracts
• Example 3 . Unique real estate obligations transferring to a new property owner as a condition of sale
• Example 4 . Many mergers and acquisitions transactions, such as insurance companies taking over customer policies during a merger

Here’s an article about the different types of assignment clauses.

Assignment Clause Samples

Sample 1 – sales contract.

Assignment; Survival .  Neither party shall assign all or any portion of the Contract without the other party’s prior written consent, which consent shall not be unreasonably withheld; provided, however, that either party may, without such consent, assign this Agreement, in whole or in part, in connection with the transfer or sale of all or substantially all of the assets or business of such Party relating to the product(s) to which this Agreement relates. The Contract shall bind and inure to the benefit of the successors and permitted assigns of the respective parties. Any assignment or transfer not in accordance with this Contract shall be void. In order that the parties may fully exercise their rights and perform their obligations arising under the Contract, any provisions of the Contract that are required to ensure such exercise or performance (including any obligation accrued as of the termination date) shall survive the termination of the Contract.

Reference :

Security Exchange Commission - Edgar Database,  EX-10.29 3 dex1029.htm SALES CONTRACT , Viewed May 10, 2021, <  https://www.sec.gov/Archives/edgar/data/1492426/000119312510226984/dex1029.htm >.

Sample 2 – Purchase and Sale Agreement

Assignment . Purchaser shall not assign this Agreement or any interest therein to any Person, without the prior written consent of Seller, which consent may be withheld in Seller’s sole discretion. Notwithstanding the foregoing, upon prior written notice to Seller, Purchaser may designate any Affiliate as its nominee to receive title to the Property, or assign all of its right, title and interest in this Agreement to any Affiliate of Purchaser by providing written notice to Seller no later than five (5) Business Days prior to the Closing; provided, however, that (a) such Affiliate remains an Affiliate of Purchaser, (b) Purchaser shall not be released from any of its liabilities and obligations under this Agreement by reason of such designation or assignment, (c) such designation or assignment shall not be effective until Purchaser has provided Seller with a fully executed copy of such designation or assignment and assumption instrument, which shall (i) provide that Purchaser and such designee or assignee shall be jointly and severally liable for all liabilities and obligations of Purchaser under this Agreement, (ii) provide that Purchaser and its designee or assignee agree to pay any additional transfer tax as a result of such designation or assignment, (iii) include a representation and warranty in favor of Seller that all representations and warranties made by Purchaser in this Agreement are true and correct with respect to such designee or assignee as of the date of such designation or assignment, and will be true and correct as of the Closing, and (iv) otherwise be in form and substance satisfactory to Seller and (d) such Assignee is approved by Manager as an assignee of the Management Agreement under Article X of the Management Agreement. For purposes of this Section 16.4, “Affiliate” shall include any direct or indirect member or shareholder of the Person in question, in addition to any Person that would be deemed an Affiliate pursuant to the definition of “Affiliate” under Section 1.1 hereof and not by way of limitation of such definition.

Security Exchange Commission - Edgar Database,  EX-10.8 3 dex108.htm PURCHASE AND SALE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1490985/000119312510160407/dex108.htm >.

Sample 3 – Share Purchase Agreement

Assignment . Neither this Agreement nor any right or obligation hereunder may be assigned by any Party without the prior written consent of the other Parties, and any attempted assignment without the required consents shall be void.

Security Exchange Commission - Edgar Database,  EX-4.12 3 dex412.htm SHARE PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1329394/000119312507148404/dex412.htm >.

Sample 4 – Asset Purchase Agreement

Assignment . This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, at any time after the Closing, are freely assignable by Buyer. This Agreement and any of the rights, interests, or obligations incurred hereunder, in part or as a whole, are assignable by Seller only upon the prior written consent of Buyer, which consent shall not be unreasonably withheld. This Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.

Security Exchange Commission - Edgar Database,  EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1428669/000119312510013625/dex21.htm >.

Sample 5 – Asset Purchase Agreement

Assignment; Binding Effect; Severability

This Agreement may not be assigned by any party hereto without the other party’s written consent; provided, that Buyer may transfer or assign in whole or in part to one or more Buyer Designee its right to purchase all or a portion of the Purchased Assets, but no such transfer or assignment will relieve Buyer of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors, legal representatives and permitted assigns of each party hereto. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable the remaining provisions shall remain in full force and effect unless the deletion of such provision shall cause this Agreement to become materially adverse to either party, in which event the parties shall use reasonable commercial efforts to arrive at an accommodation that best preserves for the parties the benefits and obligations of the offending provision.

Security Exchange Commission - Edgar Database,  EX-2.4 2 dex24.htm ASSET PURCHASE AGREEMENT , Viewed May 10, 2021, < https://www.sec.gov/Archives/edgar/data/1002047/000119312511171858/dex24.htm >.

Common Contracts with Assignment Clauses

Common contracts with assignment clauses include:

• Real estate contracts
• Sales contract
• Asset purchase agreement
• Purchase and sale agreement
• Bill of sale
• Assignment and transaction financing agreement

Assignment Clause FAQs

Assignment clauses are powerful when used correctly. Check out the assignment clause FAQs below to learn more:

What is an assignment clause in real estate?

Assignment clauses in real estate transfer legal obligations from one owner to another party. They also allow house flippers to engage in a contract negotiation with a seller and then assign the real estate to the buyer while collecting a fee for their services. Real estate lawyers assist in the drafting of assignment clauses in real estate transactions.

What does no assignment clause mean?

No assignment clauses prohibit the transfer or assignment of contract obligations from one part to another.

What’s the purpose of the transfer and assignment clause in the purchase agreement?

The purpose of the transfer and assignment clause in the purchase agreement is to protect all involved parties’ rights and ensure that assignments are not to be unreasonably withheld. Contract lawyers can help you avoid legal mistakes when drafting your business contracts’ transfer and assignment clauses.

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Spotting issues with assignment clauses in M&A Due Diligence

Written by: Kira Systems

January 19, 2016

6 minute read

Although not nearly as complex as change of control provisions , assignment provisions may still present a challenge in due diligence projects. We hope this blog post will help you navigate the ambiguities of assignment clauses with greater ease by explaining some of the common variations. (And, if you like it, please check out our full guide on Reviewing Change of Control and Assignment Provisions in Due Diligence. )

What is an Assignment Clause?

First, the basics:

Anti-assignment clauses are common because without them, generally, contracts are freely assignable. (The exceptions are (i) contracts that are subject to statutes or public policies prohibiting their assignment, such as intellectual property contracts, or (ii) contracts where an assignment without consent would cause material and adverse consequences to non-assigning counterparties, such as employment agreements and consulting agreements.) For all other contracts, parties may want an anti-assignment clause that allows them the opportunity to review and understand the impact of an assignment (or change of control) before deciding whether to continue or terminate the relationship.

In the mergers and acquisitions context, an assignment of a contract from a target company entity to the relevant acquirer entity is needed whenever a contract has to be placed in the name of an entity other than the existing target company entity after consummation of a transaction. This is why reviewing contracts for assignment clauses is so critical.

A simple anti-assignment provision provides that a party may not assign the agreement without the consent of the other party. Assignment provisions may also provide specific exclusions or inclusions to a counterparty’s right to consent to the assignment of a contract. Below are five common occurrences in which assignment provisions may provide exclusions or inclusions.

Common Exclusions and Inclusions

Exclusion for change of control transactions.

In negotiating an anti-assignment clause, a company would typically seek the exclusion of assignments undertaken in connection with change of control transactions, including mergers and sales of all or substantially all of the assets of the company. This allows a company to undertake a strategic transaction without worry. If an anti-assignment clause doesn’t exclude change of control transactions, a counterparty might materially affect a strategic transaction through delay and/or refusal of consent. Because there are many types of change of control transactions, there is no standard language for these. An example might be:

In the event of the sale or transfer by [Party B] of all or substantially all of its assets related to this Agreement to an Affiliate or to a third party, whether by sale, merger, or change of control, [Party B] would have the right to assign any or all rights and obligations contained herein and the Agreement to such Affiliate or third party without the consent of [Party A] and the Agreement shall be binding upon such acquirer and would remain in full force and effect, at least until the expiration of the then current Term.

Exclusion for Affiliate Transactions

A typical exclusion is one that allows a target company to assign a contract to an affiliate without needing the consent of the contract counterparty. This is much like an exclusion with respect to change of control, since in affiliate transfers or assignments, the ultimate actors and responsible parties under the contract remain essentially the same even though the nominal parties may change. For example:

Either party may assign its rights under this Agreement, including its right to receive payments hereunder, to a subsidiary, affiliate or any financial institution, but in such case the assigning party shall remain liable to the other party for the assigning party’s obligations hereunder. All or any portion of the rights and obligations of [Party A] under this Agreement may be transferred by [Party A] to any of its Affiliates without the consent of [Party B].

Assignment by Operation of Law

Assignments by operation of law typically occur in the context of transfers of rights and obligations in accordance with merger statutes and can be specifically included in or excluded from assignment provisions. An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by operation of law requires counterparty approval:

[Party A] agrees that it will not assign, sublet or otherwise transfer its rights hereunder, either voluntarily or by operations of law, without the prior written consent of [Party B].

while an exclusion could be negotiated by a target company to make it clear that it has the right to assign the contract even though it might otherwise have that right as a matter of law:

This Guaranty shall be binding upon the successors and assigns of [Party A]; provided, that no transfer, assignment or delegation by [Party A], other than a transfer, assignment or delegation by operation of law, without the consent of [Party B], shall release [Party A] from its liabilities hereunder.

This helps settle any ambiguity regarding assignments and their effects under mergers statutes (particularly in forward triangular mergers and forward mergers since the target company ceases to exist upon consummation of the merger).

Direct or Indirect Assignment

More ambiguity can arise regarding which actions or transactions require a counterparty’s consent when assignment clauses prohibit both direct and indirect assignments without the consent of a counterparty. Transaction parties will typically choose to err on the side of over-inclusiveness in determining which contracts will require consent when dealing with material contracts. An example clause prohibiting direct or indirect assignment might be:

Except as provided hereunder or under the Merger Agreement, such Shareholder shall not, directly or indirectly, (i) transfer (which term shall include any sale, assignment, gift, pledge, hypothecation or other disposition), or consent to or permit any such transfer of, any or all of its Subject Shares, or any interest therein.

“Transfer” of Agreement vs. “Assignment” of Agreement

In some instances, assignment provisions prohibit “transfers” of agreements in addition to, or instead of, explicitly prohibiting “assignments”. Often, the word “transfer” is not defined in the agreement, in which case the governing law of the contract will determine the meaning of the term and whether prohibition on transfers are meant to prohibit a broader or narrower range of transactions than prohibitions on assignments. Note that the current jurisprudence on the meaning of an assignment is broader and deeper than it is on the meaning of a transfer. In the rarer case where “transfer” is defined, it might look like this:

As used in this Agreement, the term “transfer” includes the Franchisee’s voluntary, involuntary, direct or indirect assignment, sale, gift or other disposition of any interest in…

The examples listed above are only of five common occurrences in which an assignment provision may provide exclusions or inclusions. As you continue with due diligence review, you may find that assignment provisions offer greater variety beyond the factors discussed in this blog post. However, you now have a basic understand of the possible variations of assignment clauses. For a more in-depth discussion of reviewing change of control and assignment provisions in due diligence, please download our full guide on Reviewing Change of Control and Assignment Provisions in Due Diligence.

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Assignment provisions in contracts

Author’s note, Nov. 22, 2014: For a much-improved update of this page, see the Common Draft general provisions article .

(For more real-world stories like the ones below, see my PDF e-book, Signing a Business Contract? A Quick Checklist for Greater Peace of Mind , a compendium of tips and true stories to help you steer clear of various possible minefields. Learn more …. )

Table of Contents

Legal background: Contracts generally are freely assignable

When a party to a contract “ assigns ” the contract to someone else, it means that party, known as the assignor , has transferred its rights under the contract to someone else, known as the assignee , and also has delegated its obligations to the assignee.

Under U.S. law, most contract rights are freely assignable , and most contract duties are freely delegable, absent some special character of the duty, unless the agreement says otherwise. In some situations, however, the parties will not want their opposite numbers to be able to assign the agreement freely; contracts often include language to this effect.

Intellectual-property licenses are an exception to the general rule of assignability. Under U.S. law, an IP licensee may not assign its license rights, nor delegate its license obligations, without the licensor’s consent, even when the license agreement is silent. See, for example, In re XMH Corp. , 647 F.3d 690 (7th Cir. 2011) (Posner, J; trademark licenses); Cincom Sys., Inc. v. Novelis Corp. , 581 F.3d 431 (6th Cir. 2009) (copyright licenses); Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp. , 284 F.3d 1323 (Fed. Cir. 2002) (patent licenses). For additional information, see this article by John Paul, Brian Kacedon, and Douglas W. Meier of the Finnegan Henderson firm.

Assignment consent requirements

Model language

[Party name] may not assign this Agreement to any other person without the express prior written consent of the other party or its successor in interest, as applicable, except as expressly provided otherwise in this Agreement. A putative assignment made without such required consent will have no effect.

Optional: Nor may [Party name] assign any right or interest arising out of this Agreement, in whole or in part, without such consent.

Alternative: For the avoidance of doubt, consent is not required for an assignment (absolute, collateral, or other) or pledge of, nor for any grant of a security interest in, a right to payment under this Agreement.

Optional: An assignment of this Agreement by operation of law, as a result of a merger, consolidation, amalgamation, or other transaction or series of transactions, requires consent to the same extent as would an assignment to the same assignee outside of such a transaction or series of transactions.

• An assignment-consent requirement like this can give the non-assigning party a chokehold on a future merger or corporate reorganization by the assigning party — see the case illustrations below.

• A party being asked to agree to an assignment-consent requirement should consider trying to negotiate one of the carve-out provisions below, for example, when the assignment is connection with a sale of substantially all the assets of the assignor’s business {Link} .

Case illustrations

The dubai port deal (ny times story and story ).

In 2006, a Dubai company that operated several U.S. ports agreed to sell those operations. (The agreement came about because of publicity and political pressure about the alleged national-security implications of having Middle-Eastern companies in charge of U.S. port operations.)

A complication arose in the case of the Port of Newark: The Dubai company’s lease agreement gave the Port Authority of New York and New Jersey the right to consent to any assignment of the agreement — and that agency initially demanded $84 million for its consent.

After harsh criticism from political leaders, the Port Authority backed down a bit: it gave consent in return for “only” a $10 million consent fee, plus $40 million investment commitment by the buyer.

Cincom Sys., Inc. v. Novelis Corp., No. 07-4142 (6th Cir. Sept. 25, 2009) (affirming summary judgment)

A customer of a software vendor did an internal reorganization. As a result, the vendor’s software ended up being used by a sister company of the original customer. The vendor demanded that the sister company buy a new license. The sister company refused.

The vendor sued, successfully, for copyright infringement, and received the price of a new license, more than $450,000 as its damages. The case is discussed in more detail in this blog posting.

The vendor’s behavior strikes me as extremely shortsighted, for a couple of reasons: First, I wouldn’t bet much on the likelihood the customer would ever buy anything again from that vendor. Second, I would bet that the word got around about what the vendor did, and that this didn’t do the vendor’s reputation any good.

Meso Scale Diagnostics, LLC v. Roche Diagnostics GmbH, No. 5589-VCP (Del. Ch. Apr. 8, 2011) (denying motion to dismiss).

The Delaware Chancery Court refused to rule out the possibility that a reverse triangular merger could act as an assignment of a contract, which under the contract terms would have required consent. See also the discussion of this opinion by Katherine Jones of the Sheppard Mullin law firm.

Assignment with transfer of business assets

Consent is not required for an assignment of this Agreement in connection with a sale or other disposition of substantially all the assets of the assigning party’s business.

Optional: Alternatively, the sale or other disposition may be of substantially all the assets of the assigning party’s business to which this Agreement specifically relates.

Optional: The assignee must not be a competitor of the non-assigning party.

• A prospective assigning party might argue that it needed to keep control of its own strategic destiny, for example by preserving its freedom to sell off a product line or division (or even the whole company) in an asset sale.

• A non-assigning party might argue that it could not permit the assignment of the agreement to one of its competitors, and that the only way to ensure this was to retain a veto over any assignment.

• Another approach might be to give the non-assigning party, instead of a veto over asset-disposition assignments, the right to terminate the contract for convenience . (Of course, the implications of termination would have to be carefully thought through.)

Assignment to affiliate

[Either party] may assign this Agreement without consent to its affiliate.

Optional: The assigning party must unconditionally guarantee the assignee’s performance.

Optional: The affiliate must not be a competitor of the non-assigning party.

Optional: The affiliate must be a majority-ownership affiliate of the assigning party.

• A prospective assigning party might argue for the right to assign to an affiliate to preserve its freedom to move assets around within its “corporate family” without having to seek approval.

• The other party might reasonably object that there is no way to know in advance whether an affiliate-assignee would be in a position to fulfill the assigning party’s obligations under the contract, nor whether it would have reachable assets in case of a breach.

Editorial comment: Before approving a blanket affiliate-assignment authorization, a party should consider whether it knew enough about the other party’s existing- or future affiliates to be comfortable with where the agreement might end up.

Consent may not be unreasonably withheld or delayed

Consent to an assignment of this Agreement requiring it may not be unreasonably withheld or delayed.

Optional: For the avoidance of doubt, any damages suffered by a party seeking a required consent to assignment of this Agreement, resulting from an unreasonable withholding or delay of such consent, are to be treated as direct damages.

Optional: For the avoidance of doubt, any damages suffered by a party seeking a required consent to assignment of this Agreement, resulting from an unreasonable withholding or delay of such consent, are not subject to any exclusion of remedies or other limitation of liability in this Agreement.

• Even if this provision were absent, applicable law might impose a reasonableness requirement; see the discussion of the Shoney case in the commentary to the Consent at discretion provision.

• A reasonableness requirement might not be of much practical value, whether contractual or implied by law. Such a requirement could not guarantee that the non-assigning party would give its consent when the assigning party wants it. And by the time a court could resolve the matter, the assigning party’s deal could have been blown.

• Still, an unreasonable-withholding provision should make the non-assigning party think twice about dragging its feet too much, becuase of the prospect of being held liable for damages for a busted transaction. Cf. Pennzoil vs. Texaco and its $10.5 billion damage award for tortious interference with an M&A deal.

• Including an unreasonable-delay provision might conflict with the Materiality of assignment breach provision, for reasons discussed there in the summary of the Hess Energy case.

Consent at discretion

A party having the right to grant or withhold consent to an assignment of this Agreement may do so in its sole and unfettered discretion.

• If a party might want the absolute right to withhold consent to an assignment in its sole discretion, it would be a good idea to try to include that in the contract language. Otherwise, there’s a risk that court might impose a commercial-reasonableness test under applicable law (see the next bullet). On the other hand, asking for such language but not getting it could be fatal to the party’s case that it was implicitly entitled to withhold consent in its discretion.

• If a commercial- or residential lease agreement requires the landlord’s consent before the tentant can assign the lease, state law might impose a reasonableness requirement. I haven’t researched this, but ran across an unpublished California opinion and an old law review article, each collecting cases. See Nevada Atlantic Corp. v. Wrec Lido Venture, LLC, No. G039825 (Cal. App. Dec. 8, 2008) (unpublished; reversing judgment that sole-discretion withholding of consent was unreasonable); Paul J. Weddle, Pacific First Bank v. New Morgan Park Corporation: Reasonable Withholding of Consent to Commercial Lease Assignments , 31 Willamette L. Rev. 713 (1995) (first page available for free at HeinOnline ).

Shoney’s LLC v. MAC East, LLC, No. 1071465 (Ala. Jul. 31, 2009)

In 2009, the Alabama Supreme Court rejected a claim that Shoney’s restaurant chain breached a contract when it demanded a $70,000 to $90,000 payment as the price of its consent to a proposed sublease. The supreme court noted that the contract specifically gave Shoney’s the right, in its sole discretion , to consent to any proposed assignment or sublease.

Significantly, prior case law from Alabama was to the effect that a refusal to consent would indeed be judged by a commercial-reasonableness standard. But, the supreme court said, “[w]here the parties to a contract use language that is inconsistent with a commercial-reasonableness standard, the terms of such contract will not be altered by an implied covenant of good faith. Therefore, an unqualified express standard such as ‘sole discretion’ is also to be construed as written.” Shoney’s LLC v. MAC East, LLC , No. 1071465 (Ala. Jul. 31, 2009) (on certification by Eleventh Circuit), cited by MAC East, LLC v. Shoney’s [LLC] , No. 07-11534 (11th Cir. Aug. 11, 2009), reversing No. 2:05-cv-1038-MEF (WO) (M.D. Ala. Jan. 8, 2007) (granting partial summary judgment that Shoney’s had breached the contract).

Termination by non-assigning party

A non-assigning party may terminate this Agreement, in its business discretion , by giving notice to that effect no later than 60 days after receiving notice, from either the assigning party or the assignee, that an assignment of the Agreement has become effective.

Consider an agreement in which a vendor is to provide ongoing services to a customer. A powerful customer might demand the right to consent to the vendor’s assignment of the agreement, even in strategic transactions. The vendor, on the other hand, might refuse to give any customer that kind of control of its strategic options.

A workable compromise might be to allow the customer to terminate the agreement during a stated window of time after the assignment if it is not happy with the new vendor.

Assignment – other provisions

Optional: Delegation: For the avoidance of doubt, an assignment of this Agreement operates as a transfer of the assigning party’s rights and a delegation of its duties under this Agreement.

Optional: Promise to perform: For the avoidance of doubt, an assignee’s acceptance of an assignment of this Agreement constitutes the assignee’s promise to perform the assigning party’s duties under the Agreement. That promise is enforceable by either the assigning party or by the non-assigning party.

Optional: Written assumption by assignee: IF: The non-assigning party so requests of an assignee of this Agreement; THEN: The assignee will seasonably provide the non-assigning party with a written assumption of the assignor’s obligations, duly executed by or on behalf of the assignee; ELSE: The assignment will be of no effect.

Optional: No release: For the avoidance of doubt, an assignment of this Agreement does not release the assigning party from its responsibility for performance of its duties under the Agreement unless the non-assigning party so agrees in writing.

Optional: Confidentiality: A non-assigning party will preserve in confidence any non-public information about an actual- or proposed assignment of this Agreement that may be disclosed to that party by a party participating in, or seeking consent for, the assignment.

The Delegation provision might not be necessary in a contract for the sale of goods governed by the Uniform Commercial Code, because a similar provision is found in UCC 2-210

The Confidentiality provision would be useful if a party to the agreement anticipated that it might be engaging in any kind of merger or other strategic transaction.

Materiality of assignment breach

IF: A party breaches any requirement of this Agreement that the party obtain another party’s consent to assign this Agreement; THEN: Such breach is to be treated as a material breach of this Agreement.

A chief significance of this kind of provision is that failure to obtain consent to assignment, if it were a material breach, would give the non-assigning party the right to terminate the Agreement.

If an assignment-consent provision requires that consent not be unreasonably withheld , then failure to obtain consent to a reasonable assignment would not be a material breach, according to the court in Hess Energy Inc. v. Lightning Oil Co. , No. 01-1582 (4th Cir. Jan. 18, 2002) (reversing summary judgment). In that case, the agreement was a natural-gas supply contract. The customer was acquired by a larger company, after which the larger company took over some of the contract administration responsibilities such as payment of the vendor’s invoices. The vendor, seeking to sell its gas to someone else at a higher price, sent a notice of termination, on grounds that the customer had “assigned” the agreement to its new parent company, in violation of the contract’s assignment-consent provision. The appeals court held that, even if the customer had indeed assigned the contract (a point on which it expressed considerable doubt) without consent, the resulting breach of the agreement was not material, and therefore the vendor did not have the right to terminate the contract.

See also (list is generated automatically) :

• Notebook update: Reverse triangular merger might be an assignment of a contract, requiring consent Just updated the Notebook with a citation to a case in which the Delaware Chancery Court refused to rule out the possibility that a reverse...
• Assignment-consent requirements can cause serious problems in future M&A transactions A lot of contracts provide that Party A must obtain the prior written consent of Party B if it wishes to assign the agreement to a...
• SCOTX rejects implied obligation not to unreasonably withhold consent to assignment of contract In a recent Texas case, two sophisticated parties in the oil and gas busi­ness — let’s call them Alpha and Bravo — were negotiating a contract....
• Ken Adams and the marketplace of ideas I (used to) comment occasionally at Ken Adams’s blog. Recent examples: Here, here, here, here, and here. Ken and I disagree on a number of issues; some...

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6.4: Assignment, Delegation, and Commonly Used Contracts Clauses

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Learning Objectives

• Learn about assignment and delegation.
• Examine novation.
• Explore restrictions on assignment, exculpatory clauses, noncompete clauses, mandatory arbitration clauses, acceleration clauses, and liquidated damages clauses.
• Explore the parol evidence rule.

What if you formed a contract with a rock ’n’ roll band for its services? Specifically, you wanted the band to play at your nightclub, because you thought that your customers would enjoy the band enough to pay to see it perform. You hired this specific band because you heard that it drew large crowds of paying customers. Imagine your surprise when, as you anticipate the band’s performance, you discover that another band—one you have never heard of—has come to play instead of the original contracting band. On inquiry, you learn that the original band transferred its duties to perform to a lesser-known band. Can it do that?

Contract elements—the terms of the contract—are important. They may, among other things, foreclose your ability to bring a complaint in court, they may render you unable to be hired in your profession (at least within certain boundaries), or they may limit liability to a party that had a role in causing injury to you. If you are not aware of these elements, then you may face an unpleasant surprise if you act in a way contrary to the restrictions imposed by those terms. Likewise, contracts possess certain qualities that prohibit parties from acting in certain ways, unless those qualities are expressly waived. This section identifies common properties of contracts, as well as commonly used elements of contracts. If you are negotiating a contract and you do not like a term, then you should not agree to it. In law, there is a presumption that you have read, understood, and agreed to each and every term of any contract to which you are a party. Arguing that you did not understand or that you did not approve of a particular term in the contract will not be a valid excuse to performance. You should know what you can expect when you enter into a contract. Are you getting the band that you wanted to hire to play in your nightclub, or are you really getting any band that the original band happens to transfer its duties to?

As a preliminary matter, it is important to realize that contracts are, by law, assignable and delegable. This means that the rights conveyed by the contract may be transferred to another party by assignment, unless an express restriction on assignment exists within the contract, or unless an assignment would violate public policy. Likewise, the duties imposed on a party may be transferred to another party by delegation, unless the contract expressly restricts delegation, or there is a substantial interest in personal performance by the original party to the contract, or if delegation would violate public policy. In the case of a band hired to perform at a nightclub, an argument could be made that the original band cannot delegate its duties under the contract because there was a substantial interest in personal performance by the original band. This would render the contract nondelegable. To be on the safe side, your contract with that band should have had a clause expressly prohibiting delegation.

Many students have seen restrictions on assignment in the form of no-sublease clauses in leases with landlords. Do you have a no-sublease clause in your lease? If so, that is a restriction on assignment. This clause is necessary to prevent you from assigning your rights under the lease—your rights to inhabit the premises—to another party. It is necessary for the landlord to include that provision expressly if she wishes to prevent you from subleasing the unit, because there is a presumption in law that assignment is permitted unless it is expressly prohibited by the contract or unless the assignment would violate public policy. Since it is unlikely that letting someone else live in your housing unit in your absence would violate public policy, then the landlord must expressly prohibit the assignment within the original contract if she wishes to prevent tenants from subleasing. A landlord may have a very good reason to wish to prevent subleasing; she may wish to ensure that each tenant is creditworthy prior to allowing the tenant to live in the property.

Note that in delegation and in assignment, the original contracting party is not “off the hook” if it transfers its duties or rights to another party. For instance, if subleasing was not prohibited, and the new tenant assumed the rights and duties imposed by the original contract, the original party to the contract is still liable for the payment of rent. If the subleasing tenant does not pay the rent, the original party to the lease is still liable. The way to excuse oneself from this liability is to form a three-way novation with the original party and the new party, thereby excusing the exiting party from future liability arising under the contract. A novation is essentially a new contract that transfers all rights and duties to the new party to the contract and releases the previous party from any further obligation arising from the original contract.

Restrictions on assignment or delegation are not the only common elements that can be found in contracts. For example, you have probably encountered exculpatory clauses. An exculpatory clause is an express limitation on potential or actual liability arising under the subject matter of the contract. In short, exculpatory clauses are often employed when risk of injury exists. They seek to limit one party’s liability to another. You most certainly have signed exculpatory agreements or contracts containing exculpatory clauses if you have participated in any potentially dangerous activity at a club or with an organized group that could incur liability from injuries suffered by its patrons or members. For example, if you join a kayaking club, you will most likely be asked to sign such an agreement to “hold harmless” the club in the event of any accident or injury. However, despite the existence of an exculpatory clause, liability will not be limited (that is, the liability limitations will be unenforceable) when the party who would benefit from the limitation on liability acted with gross negligence, committed an intentional tort, or possessed greatly unequal bargaining power, or if the limitation on liability violates public policy. Imagine that you signed an agreement to engage in kayaking activities with a kayaking group, but the leader of the group battered you with her oar because she was angry with you for mishandling your kayak. Since battery is an intentional tort, the exculpatory clause will not protect the kayaking organization from liability it incurred through the actions of its employee.

Another common contract element that you may have encountered is a noncompete clause. A noncompete clause attempts to restrict competition for a specified period of time, within a certain geographic region, and for specified activities. Noncomplete clauses are generally valid against the party who signed it if the time, place, and scope are reasonable. These are very common clauses in employment contracts, particularly where the duties involved in employment are likely to involve trade secrets or other proprietary information that the company wishes to protect.

A mandatory arbitration clause is very common in consumer contracts and employment contracts. You have certainly subjected yourself to the restrictions imposed by these clauses if you have signed a contract for a credit card. Mandatory arbitration clauses require parties to a contract that contains such a clause to submit to mandatory arbitration in the event of a dispute arising under the contract. Mandatory arbitration clauses frequently foreclose any possibility of appealing arbitration awards in court.

An acceleration clause commonly exists in contracts where periodic payments are contemplated by the agreement. For example, if you signed a lease for your housing unit, then you most likely pay rent on a month-to-month basis. If you breached your lease, you would still owe rent for each subsequent month contemplated by the lease agreement. This means that your landlord would have new injury every month that you did not pay. An acceleration clause accelerates all payments due under the contract on breach. This allows the injured party—in this case, the landlord—to sue for all damages due for unpaid rent under that contract at once, rather than having to bring a new suit each month to seek monthly unpaid rent.

A liquidated damages clause allows parties to set the amount of damages in the event of breach. Agreeing to a damage amount before any breach occurs can save money and time spent litigating. Providing that the liquidated damages clause does not look like a penalty, the clause will be valid and enforced by a court that hears a dispute arising under the contract. For example, imagine that you entered into a contract for the sale of your car. If the liquidated damages clause provided for two thousand dollars of damages in the event of breach, that will probably be a valid liquidated damages clause, providing that your car is an “average” car. However, if the liquidated damages clause provided for one million dollars of damages payable by the breaching party, then that would not be enforceable by the court because it looks like a penalty. The proposed liquidated damages far exceed the value of the car that is the subject of the agreement.

Of course, there are additional common elements to contracts. This is not an exhaustive study of possible provisions, though it is a list of commonly encountered elements. For example, time of performance is often included as a separate provision. However, time for performance is an essential element in common-law contract formation, and without it, the contract may fail due to lack of definite and certain terms in formation.

A major assumption made about a written contract is that it is integrated, which means that it contains the entire expression of the parties’ agreement. That means that any statements made before the parties signed the contract are not part of the contract, unless those statements are memorialized in the contract itself. In fact, any statements or actions that are not captured within the four corners of the contract are considered parol evidence, and they will not be used to interpret the meaning of the contract.

Key Takeaways

Parties to contracts must not only take care to form the agreement so that it is legally enforceable, but they must also be aware of the properties of contracts in general, as well as specific provisions contained within contracts to which they are a party. Properties of contracts include ability to assign, delegate, and exclude parol evidence. Several types of contracts clauses are commonly used to restrict rights and limit liability.

Exercise \(\PageIndex{1}\)

• Think of an example of an exculpatory clause that you have signed. For what type of activity would you be unwilling to sign an exculpatory clause? If your refusal to sign the exculpatory clause or agreement prevented you from participating in that activity, would you still refuse to sign it?
• Do you think that too many limitations and restrictions can be placed on parties in a contract? Should there be more government regulation and standardization of contract terms between private parties? Why or why not?

Assignment and other dealings

• Using your device

What does it do and why do I need it?

An assignment clause aims to control who performs a contract and who can receive benefits under the contract. It does not, however, mean that a party’s contractual obligations are transferred over, it simply means that the performance of such obligations can be delegated. This means that burdens cannot be assigned as a matter of law, but benefits can. 

Including such a clause is important if you wish to control who receives the benefit of your performance if you are the supplier, or if you are a customer, control who carries out the contract for you. This may be important to you, for instance, if you do not wish to deliver work to your competitors or you do not want a particular person in your supply chain.

If the contract is silent on assignment and other dealings, a party can normally assign, mortgage, charge or declare a trust over its rights under the contract, without the other party’s consent and use a subcontractor to perform (but not transfer) its contractual duties. In some cases, however, a restriction on subcontracting may be implied where personal performance is required for example.

In light of this, if the parties wish to restrict such abilities, they should do this expressly. Please note, however, a prohibition on assignment has no effect on assignment of a right to receive payment, this applies to many contracts for supply of goods, services or intangibles made between UK businesses on or after 31 December 2018. 

What should I look out for?

• Effect of an assignment breach - in most cases, a breach of an assignment restriction in the main contract may trigger termination rights or other remedies, may be valid between the assignor and assignee and it does not bind the original promisor who remains liable to the original promisee (the party receiving the benefit).
• Effect of a restriction of other dealings breach - if the wording specifically carves out restrictions on ‘mortgages, charges or trust of rights’ then it should be effective to stop the contracting party holding its rights in trust for a non-party. However, a restriction on an assignment/transfer alone might not have this effect. On the contrary, in relation to a subcontract, if a restriction was in place and there has been a breach, the subcontract is normally still valid, but the other party to the main contract may not be obliged to accept or pay for the subcontractor’s performance.
• Novation - if a party wants to actually transfer its obligations under the contract, as opposed to delegating their performance, it will need to do so by way of novation.
• Subcontracting of processing personal data - if, as part of subcontracting its obligations generally, the assigning/subcontracting party is subcontracting obligations to process personal data, it should note that the GDPR imposes conditions on sub-processing. The main contractor should check the data processing provisions and subcontracting provisions in the contract for provisions relating to sub-processing.
• Indemnities - in relation to subcontracting duties, the main contractor remains liable to the continuing party for the performance of any part of the contract that is still to be fulfilled. Therefore, a main contractor will therefore generally ask their subcontractor for an indemnity against any breach or failure to perform the contract. The indemnity will not usually cover liabilities incurred before the subcontracting took effect.

If you have any queries, please do not hesitate to contact Ben Taylor .

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How Do You Draft an Assignment Clause?

By Shauna Ng Lawyer

Updated on November 24, 2022 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

Why Should I Include an Assignment or Novation Clause?

• When Might You Use an Assignment or Novation? 

What Form Does an Assignment or Novation Clause Take?

What are the risks.

• Key Takeaways 

Frequently Asked Questions

An assignment clause allows for a transfer of rights, benefits and obligations under a contract from one party to another. It is important to note that the assignor can only transfer its benefits under the contract. They cannot transfer burdens, obligations or liabilities through an assignment. This means the assignor is not released from their obligations, including any liabilities, under the contract. The assignee does not become a party to the original contract but can enforce their right to receive the benefit that the assignor assigned to them. 

A novation clause is a clause that allows for the release of one party from a contract and their replacement with another party. Unlike an assignment clause, a novation clause allows for the transfer of liabilities but requires consent from all parties to the existing contract. 

This article sets out:

• what an assignment clause looks like; 
• when you may use one; and 
• why you may wish to use one. 

It also explains the risks involved with assignments in contractual relationships. 

Suppose you want to ensure that a third party possesses the right to enforce benefits under a contract. Assignment ensures that the third party can access the benefits under the contract. As mentioned earlier, assignment only applies to benefits in a contract and excludes liabilities. 

Consider a novation if you want to transfer benefits and liabilities under the contract. Novation allows the new party to step into your shoes and take over your interests and obligations, including any burdens or liabilities under the contract. In effect, novation equates to an exchange of one party for another party. 

It is important that an assignment or novation clause clearly defines who is allowed to assign or novate the agreement and the conditions on which this can be done. Similarly, suppose you wish to ensure that you continue to deal with the party you originally contracted with. In that case, you might include the option of terminating the contract in case of an attempt at assignment or novation. 

When Might You Use an Assignment or Novation? 

When purchasing a business, much of the value attributed to that business is in the quality of:

• the existing customer base; and
• established contractual relationships with suppliers. 

If you sell a business, you will likely want to finalise any existing debts or contractual obligations. 

By novating or transferring the contracts to a new party, the new party inherits your contractual relationships. This may include:

• contracts with suppliers and customers; 
• existing debts; and 
• outstanding contractual obligations. 

There are several ways to draft an assignment or novation clause, including where:

• the parties to the agreement may only assign and/or novate the agreement, wholly or partially, with written consent from the other party;
• neither party may assign and/or novate its rights under the agreement; or 
• the agreement binds the parties and their respective heirs, successors and assignees.

Assignment Clause Example

Assignment : A party must not assign, novate or otherwise deal with the whole or any part of its rights or obligations under this Agreement without the prior written consent of the other Party (such consent is not to be unreasonably withheld). 

The effect of the clause above is to limit a party’s ability to assign its rights or benefits under the agreement, or otherwise novate its rights and obligations, by requiring consent from the other party. 

In addition, you could include an option to terminate the contract if the other party attempts to assign its rights or substitute another party into the contract. Often, the nature of an assignment and novation clause will depend on your relationship with the other party. For example, in contractual relationships where one of the parties has the upper hand, assignment clauses might only prevent the weaker party from assigning and expressly permit the stronger party to assign its interests without requiring approval from the other party. 

Change of Control Clause 

You should also consider whether a change of control clause is required. A change of control clause anticipates a situation where there is a change in the ownership or control of a party to the contract. A well-drafted change of control clause should define the set of events that constitute a change of control, which may:

• trigger a certain set of events, such as termination; or
• be considered an assignment, triggering the same information and consent requirements necessary in an assignment situation. 

Why would you care about a change of ownership in the other party? There are several reasons why a change of ownership or control of the other party could be problematic, including where: 

• you have a close business relationship with the existing owners; 
• you are concerned about competitors or potential competitors owning the counterparty; or 
• you have internal policies or prescribed risk structures that determine which companies or group of companies you can contract with. 

If you do not have an effective novation or assignment clause, you risk ending up in a contract with an unknown party. The party you end up in a contract with could have different values and abilities than the party you initially contracted. This can negatively impact your business. 

However, it is important to consider the availability of assignment and novation from a prospective purchaser’s point of view. For example, not being able to assign your contracts with customers or supplies might decrease your business’s overall attractiveness and value to that buyer. 

Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.

Key Takeaways 

When entering into contracts, it is essential that your contract lawyer carefully considers any novation or assignment clauses. These clauses are important mechanisms that allow for the transfer of interest, obligations, rights and benefits within a contractual relationship. In some circumstances, they may increase the value and flexibility of your business. In other circumstances, however, they can pose the risk of losing control of the skillsets, values and abilities of the party you are contracting with. 

If you need help with an assignment clause, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page .

An assignment clause allows for a transfer of rights, benefits and obligations under a contract from one party to another. 

A novation clause is a clause that allows for the release of one party from a contract and replaces them with another party.

A change of control clause anticipates a situation where there is a change in the ownership or control of a party to the contract.

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What Is the Difference Between Assignment and Novation?

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Buying a Business: What To Know About Lease Assignment

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United States: When Is An "Assignment" Clause Worth Fighting For?

Q. My small business is negotiating with a vendor who has asked to remove our contract’s “assignment” clause entirely. Is it worth the time to argue over whether to include an assignment clause?

A.  First, it’s important to understand the purpose of the assignment clause. “Assignment” occurs when a party transfers its rights and obligations under a contract to another party. Generally, unless the parties have agreed otherwise, each can assign its rights and obligations freely.

Article 2 of the Uniform Commercial Code, a set of laws governing the sale of goods that has been adopted by 49 states, including New Hampshire, provides that a party can freely assign its rights and obligations to another unless such assignment would materially change the duties of the other party, burden the other party, or decrease the other party’s chances of receiving performance under the contract.

If your vendor eliminates the assignment clause and no agreement on the topic is provided in the contract, your vendor will be free to transfer its obligations to another person or company without giving you notice or obtaining your approval.

Parties do have the ability, however, to mutually decide against the free assignability of a contract and this is often accomplished through an assignment clause. An assignment clause spells out which, if any, of a party’s obligations and rights under a contract are able to be assigned, or transferred, to another party. Free assignability and no assignability are not the only options, and you and your vendor can negotiate terms for assignment that are amenable to both of you.

For example, some clauses allow for assignment with the other party’s consent, meaning, the vendor would have to obtain your approval of the assignee prior to assigning any of its rights or obligations under the contract. Other times, assignment clauses allow for free assignment only to certain persons or entities, such as the vendor’s subsidiaries and affiliates, provided that the vendor gives you notice of such permitted assignment. Another option is to allow for assignment by the vendor provided that it guaranties the assignee’s performance.

Consider potential situations in which the vendor may want to assign the contract and determine whether it’s important to you to have control over assignment in each instance.

Consider discussing situations in which it may be important for the vendor to have freedom of assignment and, instead of removing the provision all together, specify those situations in which assignment is permitted, list those rights or obligations that are assignable, and consider whether, when assignment is permitted, notice, consent or a guaranty will be required.

Published in the Union Leader (2/25/2019)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Including a “Change of Control” Clause in Business Contracts

You’ve searched for the right business partner and have finally found the one you think will be right. You are prepared to promise a term of 6 years with 2 optional renewal periods of 1 year each. What could go wrong? For one thing, the people who run or own the business can change. Even after diligently researching and evaluating the party to which you are obligating your business by contract, you may risk having to deal with another party in the future. The “counter-party,” may transfer all or some of its assets or stock in the business to a third-party, leaving you to deal with a new partner, who you don’t know, or who might potentially even be a competitor of yours. What can you do?

Many contracts contain an anti-assignment clause, which prohibits the parties from assigning their rights or obligations under the contract to another party. In addition, contracts should, but often do not, have a “Change of Control” clause, allowing you to have recourse (even termination) if the partner that you’re doing business with changes in ownership or structure. In the case of an asset sale by that party, for example, you might not want to be doing business with a shell of a company that has sold a dramatic portion of its assets or those parts of its business that are most important to you. Having the right to terminate the contract in the event of a sale of particular assets, a particular percentage of assets, or a particular line of business, protects your interests. Stock sales, which can occur without your knowledge, can result in ownership of the business being altered dramatically; the transfer of the business could even be made to one of your competitors. It’s important for you to know of such proposed transactions in advance and take steps to protect your business.

For this reason, among others, contract drafters will include a Change-of-Control provision which allows a party to determine if and how he would like to continue to do business in the event of a change of ownership, change of management, or change in the assets of the other party. This can stand alone or be a part of the assignability section. When drafting a Change of Control provision, make sure you:

• Address assignability.
• Define the kind of change that you fear the most.   Is it the transfer by a counter-party of a certain percentage of ownership or interest? The sale of “all or substantially all of the assets” of the counter-party? Maybe a change in the make-up of the governing board?  This is a good time to examine and define the affiliates of your counter-party. Depending on how much ownership they have in common with the original party to the agreement, changes of control involving affiliates may not affect operations significantly.
• Determine the type of control you require.  Should you require your counter-party to obtain your consent? Provide payment? Give you the right to terminate the contract if you decide you do not want to do business with the third-party.

For more information about particular contract clauses that help you protect your business interests, contact us today.

About the authors:

Attorney Paul McGinley practices business and commercial law , counseling small and large business clients in a variety of industries.

Attorney Nicole O’Hara regularly negotiates contracts for the commercialization of intellectual property and other business agreements.

The content found in this resource is for informational reference use only and is not considered legal advice. Laws at all levels of government change frequently and the information found here may be or become outdated. It is recommended to consult your attorney for the most up-to-date information regarding current laws and legal matters.

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No assignment

No assignment clause samples

No Assignment .ExecutiverepresentsandwarrantsthatExecutive has made no assignment or other transfer, and covenants that Executive will make no assignment or other transfer, of any interest in any claim which Executive may have against the Company or any of the other Releasees (as defined in the Release).

11/06/2020 (Summit Midstream Partners, LP)

17. No Assignment . The Employee represents and warrants that Employee has made no assignment , and will make no assignment , of any claim, action, or right of any kind whatsoever, embodied in any of the matters referred to in this Agreement, and that no person or entity of any kind had or has any interest in any of the demands, obligations, actions, claims, debts, liabilities, rights, contracts, damages, attorneys’ fees, costs, expenses, losses, or claims referred to in this Agreement. By signing this Agreement, Employee has released all claims against the Releasees on behalf of Employee’s self, heirs, spouse, representatives, attorneys, advisors, family members, agents, or assigns.

05/01/2019 (NUVASIVE INC)

6. NO ASSIGNMENT . No party hereto may assign its rights, interests or obligations hereunder to any other person (except by operation of law) without the prior written consent of each other party hereto; provided, however, that the Guarantor may assign all or a portion of its obligations hereunder, with prior written notice to the Guaranteed Party accompanied by a guarantee in the form identical to this Limited Guarantee duly executed and delivered by the assignee, to an Affiliate of the Guarantor; provided, further, that no such assignment shall relieve the Guarantor of any liability or obligations hereunder except to the extent actually performed or satisfied by the assignee.

11/21/2017 (JA Solar Holdings Co., Ltd.)

5. No Assignment . This letter and the commitment of the Investor described herein shall not be assignable by Parent without the prior written consent of the Investor, and the granting of such consent in a given instance shall be solely in the discretion of the Investor and, if granted, shall not constitute a waiver of this requirement as to any subsequent assignment. The Investor may without the prior written consent of Parent assign some or all of its obligations under Section1 to any of its Affiliates if such assignment is not reasonably expected to have the effect of impairing or delaying the Closing or the funding of the Investor’s Commitment at the time set forth in Section1, but may not otherwise assign its rights or obligations hereunder. No assignment by the Investor of any of its obligations hereunder will relieve the Investor of its obligations under this letter. Any purported assignment in contravention of this Section5 shall be void.

07/17/2017 (NCI, Inc.)

12. No Assignment . This Note shall not be assignable by Payee without the prior written consent of Maker.

08/17/2018 (Collective Wisdom Technologies, Inc.)

C. No Assignment . A Participant or Participant’s beneficiary shall have no right to anticipate, alienate, sell, transfer, assign, pledge or encumber any right to receive any incentive made under the Plan, nor will any Participant or Participant’s beneficiary have any lien on any assets of any Participating Employer, or any affiliate thereof, by reason of any Award made under the Plan.

02/14/2017 (Vistra Energy Corp)

9) NO ASSIGNMENT . The Option Agreement and the Option Rights shall not be assignable, whether by operation of law or otherwise, and any attempt to do so shall be void.

08/19/2020 (SIGNET INTERNATIONAL HOLDINGS, INC.)

11. No Assignment . The Commitments evidenced by this Agreement shall not be assignable, in whole or in part, by Newco without each Fund’s prior written consent, and the granting of such consent in a given instance shall be solely in the discretion of such Fund, and, if granted, shall not constitute a waiver of this requirement as to any subsequent assignment. No assignment by any Fund shall relieve such Fund of any of its obligations under this Agreement (including, without limitation, with respect to the Commitment), and, without limitation of the foregoing, if any assignee is unable or unwilling to fund, including by reason of the failure to obtain any approvals required by any Governmental Authorities relating to such assignment, the assignor Fund shall fund the previously assigned portion of its Commitment. Any purported assignment of this Agreement or the Commitment in contravention of this Section11 shall be void.

10/30/2017 (Gigamon Inc.)

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Assignments Contract Clauses (8,849)

Grouped into 236 collections of similar clauses from business contracts.

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The FTC Just Banned Most Noncompete Agreements. Business Groups Vow To Sue.

The Federal Trade Commission voted Tuesday to adopt a new rule that will soon ban new arrangements prohibiting workers from switching jobs to competitors, but let existing noncompetes remain for certain senior executives. The U.S. Chamber of Commerce is threatening a court challenge.

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A non-compete clause (often NCC), or covenant not to compete (CNC), is a term used in contract law under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer).

This is a developing story and will be updated.

T he Federal Trade Commission voted Tuesday to approve a final rule that would ban most new noncompete agreements, effectively barring their use except in limited cases and setting the stage for legal fights between business groups that oppose the rule and its supporters, which include the Biden administration.

Shortly after the rule was released, the Chamber of Commerce said in a statement that it plans to challenge the ruling in court. “The Chamber will sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked,” the organization’s president and CEO, Suzanne Clark, said in a press release.

In key changes announced Tuesday to the proposed rule, the agency said existing noncompete agreements may remain in effect for senior executives, which the FTC defines as those earning more than $151,163 annually who are in “policy-making positions,” but would be unenforceable for all other employees. It also doubled the transition time period for when the rule will come into effect, to 120 days. Newly established noncompetes would be banned for all employees following that date.

While the Republican commissioners argued that the FTC did not have congressional authority to pass the rule, the commission’s Democratic chair, Lina Khan, argued “the FTC Act clearly gives the agency the authority to address unfair methods of competition. To my mind, arguing that the FTC lacks the authority requires ignoring the straightforward reading” of the act’s text, she said.

The vote on the final rule, which fell along party lines, with three Democratic commissioners voting in favor and the agency’s two Republicans voting against, caps a more than year-long process. Once effective, the new rule would become the first at the federal level to restrict noncompete agreements for most workers nationwide.

Noncompete agreements prohibit workers who sign them from working for a direct competitor, or creating their own, after leaving an employer. The new rule will apply to employees, as well as independent contractors, interns, volunteers and others who work for companies that fall under the FTC’s regulatory authority.

The FTC said Tuesday that existing noncompete agreements for workers who don’t meet the definition of “senior executive” would not have to be rescinded, but also won’t be enforceable. It explained that those who make “policy-making decisions” are executives who have the “final authority to make policy decisions that control significant aspects of a business entity,” and account for less than 1% of workers.

While that may leave room for some interpretation, “the initial view is that it will be a limited set of employees, which is consistent with what the FTC is trying to do here,” says Robert Milligan, Los Angeles-based partner at Seyfarth Shaw.

The FTC introduced its proposed rule in January 2023 following a 2021 executive order from President Joe Biden. It argued that noncompete agreements hurt workers by lowering wages and stifling innovation if workers can’t start companies that compete with their former employers. According to the commission , banning noncompete agreements would free 30 million people in the United States from their current noncompetes and increase earnings between $400 billion and $488 billion per year.

Yet the proposed rule was met with heavy criticism. Nearly 27,000 comment letters were submitted to the FTC in the year since the submission period opened, drawing ire from industry associations including the U.S. Chamber of Commerce; an intellectual property group headed by executives from companies such as Apple, Dell, Nike and Google; the National Small Business Association and the Securities Industry and Financial Markets Association, which argued that a noncompete ban would actually stifle innovation .

In its statement Tuesday, the Chamber of Commerce said “the Federal Trade Commission’s decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive.”

With so much pushback, lawyers have been expecting legal challenges. “Someone or multiple groups will file a lawsuit attempting to obtain an injunction to prevent the law from taking effect,” says Chris Marquardt, an Atlanta-based partner at Alston & Bird.

The FTC’s rule will supersede any state regulation. Several states , including California and Colorado, already ban or restrict noncompete agreements for all or some employees, such as those earning above a certain income level or working in certain industries. A group of attorneys general from 17 states and Washington D.C. wrote a letter last spring in support of a federal rule, arguing that it will “clarify the law and yield predictable outcomes for workers and employers” across multiple states. More than 25,000 of the letters received by the FTC were in support of the proposed ban, the FTC said in Tuesday’s meeting. Among them were Democratic senators, as well as several labor organizations including the AFL-CIO and the Service Employees International Union .

But another group of state attorney generals, including those from West Virginia, Utah and Texas, criticized the draft rule as an overreach, arguing the decision should be left to the states. “Noncompetes are not an issue a top-down categorical ban can solve,” they argued in a letter to the FTC. “State flexibility matters, especially in an area where tailored solutions can better reflect difficult-to-balance policy needs.”

There are a few groups and types of employees who will be exempt from the noncompete rule. In addition to senior executives with existing agreements, they include franchise owners, who are considered business owners rather than employees, as well as people who are owners of more than 25% of a company that is sold to another entity. Employees of banks and nonprofit organizations are also exempt because they largely do not fall under the FTC’s regulatory authority, says Marquardt.

The rule on noncompetes will not impact nondisclosure or nonsolicitation agreements, which prohibit workers from poaching a company’s clients or contacts upon leaving, lawyers say, unless they are deemed as being a substitute for noncompetes. Companies could still pursue prosecution of former or current employees regarding more specific allegations, such as sharing trade secrets.

“When there is a lawsuit over a noncompete, there is almost always a group of claims done at the same time,” says Marquardt, such as allegations of giving confidential information to a competitor. The new rule, he says, if approved, “is not going to end litigation between companies and individuals when you have the scenario of someone going to work for a direct competitor.”

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F.T.C. Issues Ban on Worker Noncompete Clauses

The rule would prohibit companies from limiting their employees’ ability to work for rivals, a change that could increase competition and boost wages.

By J. Edward Moreno

The Federal Trade Commission on Tuesday said employers could no longer, in most cases, stop their employees from going to work for rival companies.

The sweeping action could help create jobs, raise wages and increase competition among businesses, the agency said. But the action is all but certain to be challenged in court by businesses that say they need to protect trade secrets and confidential information.

The move bars contracts known as noncompetes, which prevent workers from leaving for a competitor for a certain amount of time, in most circumstances. Noncompetes cover about 30 million U.S. workers, the trade commission said, in a variety of jobs that include TV news producers , hairdressers, corporate executives and computer engineers.

The commission has said the proposal would raise wages by forcing companies to compete harder for talent. It was approved in a 3-to-2 vote. Commissioners Melissa Holyoak and Andrew N. Ferguson, both Republicans, voted against the measure.

“The F.T.C.’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market,” the commission’s chair, Lina M. Khan, said in a statement. She estimated the decision would lead to the creation of 8,500 start-ups in a year and up to $488 billion in increased wages for workers over the next decade.

President Biden celebrated the F.T.C.’s vote in a social media post . “Workers ought to have the right to choose who they want to work for,” he wrote on X.

But the U.S. Chamber of Commerce vowed to sue the F.T.C. to block the proposal, calling it “an unlawful power grab” in a statement shortly after the vote. The chamber, as well as the two dissenting commissioners, has argued that the F.T.C. doesn’t have the authority to address this issue and that it should be left to the states.

The agency voted more than a year after it first issued the proposed rule, in January 2023. It said it had received more than 20,000 comments from the public about the rule.

Employers have argued that noncompete contracts provide an incentive to invest in employees — because they ensure that the worker won’t leave to join a competitor. Unions, including the A.F.L.-C.I.O. and the Service Employees International Union, have supported the F.T.C.’s move.

The rule would become law 120 days after it is published in the Federal Register, which will probably happen in a few days. But legal challenges could delay or block the change.

Noncompete contracts affecting senior executives can remain in effect, the commission said, but employers are barred from trying to impose new noncompetes on any employee, including executives.

The new rule defines executives as employees “in policy-making positions” who make at least $151,164 annually. It orders employers to notify nonexecutive employees bound by an existing noncompete that it will no longer be enforceable.

Some states, including California and Oregon, have moved to restrict noncompetes on their own.

In December, Gov. Kathy Hochul of New York vetoed a bill that would have banned noncompetes in the state. She said the bill should have been narrower and apply only to low-wage workers. Wall Street staunchly opposed the legislation, which the State Legislature’s Democratic majority passed.

Workers in finance and professional services are the most likely to have noncompete contracts, at a rate of nearly 20 percent . Studies have shown that noncompetes suppress wages because switching jobs is the most efficient way workers can increase how much they make.

“This would be an immediate shock that would allow millions of workers to be free to take a better job in their industry,” said Evan Starr, an economics professor at the University of Maryland. “I would expect the labor market to increase almost overnight.”

Stefanie Camfield, an assistant general counsel at Engage PEO, a human resources consulting firm, said her clients had asked more about noncompetes in advance of the agency’s decision. While some of them use noncompetes to prevent workers from leaving for rival firms, she said, others struggle to hire workers bound by the same kind of agreements.

“We see the flip side of the coin as well,” Ms. Camfield said.

Joyce Smithey, a lawyer who represents workers in Maryland, said some of her clients had been pushed out of their industry because they worried about violating their noncompete contract. One, a female chief executive, left her industry to start a business out of fear of being sued by her deep-pocketed former employer.

“You sign these usually at the beginning of the relationship, when nobody is suspecting how bad it will become,” Ms. Smithey said.

Under Ms. Khan, the F.T.C. has taken a more aggressive stance toward regulating corporate America. It has tried to expand its role in proactively setting rules for businesses in addition to its work suing companies for legal violations. It has proposed new regulations to govern online and children’s privacy and ban hidden fees that are attached to consumer purchases.

In a separate action, the Department of Labor issued a final rule that will make millions more workers eligible for overtime pay. Workers making less than $58,656 will automatically be owed time and a half when the rule takes effect in January.

David McCabe contributed reporting.

J. Edward Moreno is a business reporter at The Times. More about J. Edward Moreno

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After 26,000 public comments, FTC to vote on rule banning noncompete agreements

The U.S. Federal Trade Commission building in Washington, D.C. Paul J. Richards/AFP via Getty Images hide caption

The U.S. Federal Trade Commission building in Washington, D.C.

After receiving more than 26,000 public comments, the five members of the Federal Trade Commission are set to vote Tuesday on whether to issue a final rule banning noncompetes, declaring them an unfair method of competition.

In a statement last week, the FTC said the final rule under consideration "would generally prevent most employers from using noncompete clauses." It's not yet clear how the final rule differs from the version first proposed in January 2023.

A noncompete agreement typically blocks a worker from going to work for a competitor or starting up a competing business of their own. The FTC estimates about 30 million people, or one in five American workers, from minimum wage earners to CEOs, are bound by noncompetes .

Many workers barely recall signing noncompetes, until they try to change jobs

Noncompete Agreements Are Everywhere, Even Neighborhood Yoga Studios

The Biden administration has argued that these agreements harm workers by lowering wages and hurt the U.S. economy by stifling entrepreneurship.

"The freedom to change jobs is core to economic liberty and to a competitive, thriving economy," said FTC Chair Lina M. Khan in a statement when the proposed rule was first introduced . "Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand."

The Federal Trade Commission, chaired by Lina M. Khan, is voting on Tuesday, April 23, on whether to issue a proposed final rule that would prevent most employers from enforcing noncompetes against workers. Saul Loeb/Getty Images hide caption

The Federal Trade Commission, chaired by Lina M. Khan, is voting on Tuesday, April 23, on whether to issue a proposed final rule that would prevent most employers from enforcing noncompetes against workers.

Businesses contend that noncompetes are critical for protecting their investments and proprietary information and question whether the FTC even has the authority to regulate such agreements.

Even after today's vote, the future of these agreements will be far from clear. Should the FTC vote to issue a final rule, it would not be enforced until later this year, and legal challenges are expected.

FTC says noncompetes harm low-wage and high-wage earners

Tuesday's vote comes 15 months after the FTC first issued its proposed rule, banning employers from entering into noncompete agreements with their employees and requiring existing agreements to be rescinded.

In a fact sheet, the agency cited several real-world examples, drawn from media reports, of workers who were harmed by such clauses.

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One case involved a single father working as a security guard who was forced to resign his overnight job that paid $11 an hour after he lost access to nighttime child care. He landed a similar job with daytime hours that paid $15 an hour, but his old employer challenged his employment based on a noncompete he had signed, and he was fired.

Another case involved a vice president at Amazon who left the company to join a tech startup. Amazon sued to try to block him from taking the new job, citing a noncompete agreement. After negative media coverage, Amazon dropped the suit, and the startup thrived.

Cases elsewhere abound — in the pharmaceutical industry, janitorial services, even zen yoga studios .

Kentucky had an outside-the-box idea to fix child care worker shortages. It's working

The cases highlight the power differential that noncompetes can create, with lower-wage earners often more vulnerable than those in leadership positions. By allowing more workers to leave jobs for better-paying ones, the FTC estimates a rule banning noncompetes would increase the earnings of the American workforce by as much as $296 billion per year.

The business community says noncompetes are vital for protecting investments

The U.S. Chamber of Commerce, which ardently opposes the ban, says noncompetes benefit both employers and employees. Companies are more likely to spend resources training and developing their workforce if they have some reassurance that their workers won't take their knowledge to a competitor, the U.S. Chamber explained in written comments to the FTC .

Contrary to the FTC's view, the U.S. Chamber also argues that noncompetes encourage innovation, by ensuring more robust protection of trade secrets. Without noncompetes, companies may be less willing to pour large amounts of time and money into research and development, the group warned.

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Why the ftc is cracking down on location data brokers.

The FTC's proposed rule did include a notable exception for noncompete agreements between sellers and buyers of businesses, meant to protect the value of the businesses being acquired. The two sides could still enter a noncompete agreement provided the seller had at least a 25% ownership interest in the business being sold.

But the business community says this exception is far from enough. It has asked the FTC to consider other proposals, including an income threshold, so that companies could still enter noncompete agreements with highly-paid employees while protecting those at the lower end of the pay scale.

• noncompete agreements
• competition
• Federal Trade Commission

Watch CBS News

FTC bans noncompete agreements, making it easier for workers to quit. Here's what to know.

By Kate Gibson

Edited By Alain Sherter

Updated on: April 23, 2024 / 8:46 PM EDT / CBS News

Federal regulators on Tuesday enacted a nationwide ban on new noncompete agreements, which keep millions of Americans — from minimum-wage earners to CEOs — from changing jobs within their industries.

The Federal Trade Commission on Tuesday afternoon voted 3-to-2 to approve the new rule , which will ban noncompetes for all workers when the regulations take effect in 120 days. For senior executives, existing noncompetes can remain in force. For all other employees, existing noncompetes are not enforceable.

The antitrust and consumer protection agency heard from thousands of people who said they had been harmed by noncompetes, illustrating how the agreements are "robbing people of their economic liberty," FTC Chair Lina Khan said. 

The FTC commissioners voted along party lines, with its two Republicans arguing the agency lacked the jurisdiction to enact the rule and that such moves should be made in Congress. 

Within hours of the vote, the U.S. Chamber of Commerce said it would sue to block "this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked." The new rule would "undermine American businesses' ability to remain competitive," the trade group, which advocates for U.S. corporations and businesses, said in a statement.

Why it matters

The new rule could impact tens of millions of workers, said Heidi Shierholz, a labor economist and president of the Economic Policy Institute, a left-leaning think tank. 

"For nonunion workers, the only leverage they have is their ability to quit their job," Shierholz told CBS MoneyWatch. "Noncompetes don't just stop you from taking a job — they stop you from starting your own business."

Since  proposing the new rule , the FTC has received more than 26,000 public comments on the regulations. The final rule adopted "would generally prevent most employers from using noncompete clauses," the FTC said in a statement.

The agency's action comes more than two years after President Biden directed the agency to "curtail the unfair use" of noncompetes, under which employees effectively sign away future work opportunities in their industry as a condition of keeping their current job. The president's executive order urged the FTC to target such labor restrictions and others that improperly constrain employees from seeking work.

"The freedom to change jobs is core to economic liberty and to a competitive, thriving economy," Khan said in a statement making the case for axing noncompetes. "Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand."

A threat to trade secrets?

An estimated 30 million people  — or one in five U.S. workers — are bound by noncompete restrictions, according to the FTC.  The new rule could boost worker wages by a total of nearly $300 billion a year, according to the agency.

Employers who use noncompetes argue that they are needed to protect trade secrets or other confidential information employees might learn in the course of their jobs. But corporations concerned about protecting their intellectual assets can use restraints such as confidentiality agreements and trade secret laws, and don't need to resort to noncompete agreements, the FTC staff determined. 

The commission's final rule does not nullify existing noncompetes with senior executives, who are defined as those earning more than $151,164 a year and who hold a policy-making position. Those execs are much more likely to negotiate the terms of their compensation, according to regulators.  

Still, the FTC is banning new noncompetes for senior executives on the grounds that the agreements stifle competition and discourage employees from creating new businesses, potentially harming consumers.

The idea of using noncompetes to keep business information out of the hands of rivals has proliferated, noted Shierholz, citing a notorious case  involving Jimmy John's eateries .

Low-paid workers are now the hardest hit by restrictive work agreements, which can forbid employees including janitors,  security guards  and  phlebotomists  from leaving their job for better pay even though these entry-level workers are least likely to have access to trade secrets.

Real-life consequences

In laying out its rationale for banishing noncompetes from the labor landscape, the FTC offered real-life examples of how the agreements can hurt workers.

In one case, a single father earned about $11 an hour as a security guard for a Florida firm, but resigned a few weeks after taking the job when his child care fell through. Months later, he took a job as a security guard at a bank, making nearly $15 an hour. But the bank terminated his employment after receiving a letter from the man's prior employer stating he had signed a two-year noncompete.

In another example, a factory manager at a textile company saw his paycheck dry up after the 2008 financial crisis. A rival textile company offered him a better job and a big raise, but his noncompete blocked him from taking it, according to the FTC. A subsequent legal battle took three years, wiping out his savings. 

Kate Gibson is a reporter for CBS MoneyWatch in New York.

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