U.S. - Delaware

Non-competition Agreements (General Rule): see Weichert v Young (Del. Ch. 2007), citing the four factors set forth in Delaware Express Shuttle, 2003 Del. Ch. LEXIS 124; 2002 WL 31458243), and stating Delaware law to the following effects:

  • Valid Contract.  As a matter of law, “employment or continued employment may serve as consideration for an at-will employee’s agreement to a restrictive covenant.” [14]
  • Duration.  "Covenants of two-years’ duration are consistently held to be reasonable. [18] Those few cases holding that two years is an unreasonable duration involve unskilled workers who received no specialized training–clearly not the type of employee in this case. [19]"
  • Geographic Scope.  "The geographic scope of a restrictive covenant is acceptable to the extent it is necessary to protect a party’s legitimate interests. [21] Thus, the reasonableness of a covenant’s scope is not determined by reference to physical distances, but by reference to the area in which a covenantee has an interest the covenants are designed to protect."
  • Balance Of The Equities.  "In the context of enforcing a covenant not to compete, “[e]quity may decline to grant specific enforcement if the interests that the employer seeks to protect are ephemeral in contrast to the grave harm to the employee resulting from enforcing the restriction.” [32] In this case, the equities weigh in favor of enforcing the covenants. On the one hand, Weichert required Young to sign covenants not to solicit or hire employees or contractors both as a condition of employment and as a condition to receiving his severance pay. There is no indication that Young did not, or could not, understand the covenants he signed. Further, as established above, the covenants serve to protect Weichert’s legitimate business interests.

BEWARE - "Blue-penciling" may not be a remedy. In Delaware Elevator, Inc. v. John Williams, No. 5596-VCL (Del. Ch. March 16, 2011), the Delaware Chancery grudgingly blue-penciled an overly-broad non-compete, but only because the court was enforcing Maryland law. The Delaware court warned in dicta as follows:

  • "In my view, a court should not allow an employer to back away from an overly broad covenant by proposing to enforce it to a lesser extent than written. More importantly, a court should not save a facially invalid provision by rewriting it and enforcing only what the court deems reasonable. Doing so puts the employer in a no-lose position. If an employer knows that the court will enforce a reasonable covenant as a fallback, the employer has every reason to start with an overbroad provision."

See generally: Blog re Delaware Non-competes, Trade Secrets, etc. -- by Young, Conaway, Stargatt & Taylor, LLC.Independent Contractors

"The legitimate economic interests of an employer in restricting the substantially similar activities of an independent contractor will be more limited than they would be with respect to an employee. ... The non-competition agreement is therefore limited to actions that are the same as, and compete directly with, EDIX's own business activities."  Edix Media v. Mahani (Del.Ch. 2006), 2006 WL 3742595, at *8.Injunctive Relief

 2010 Dec. 15   Wal-Mart obtains preminary injunction vs. executive joining CVS -- see Wal-Mart v. Mullaney, Del.Ch., 12/15/2010).Stock Awards

2014.Mar.24  Continued Employment and Unvested Stock Award were Adequate Consideration for Non-solicitation and Confidentiality Covenants - see Newell Rubbermaid, Inc. v. Storm, No. 9398-VCN, 2014 Del. Ch. LEXIS 45 (Del. Ch. Mar. 27, 2014).

Deference to Committee Decisions - for a solid discussion of Delaware case law re initial determinations, see Graphic Packaging v. Humphrey, 2010 U.S. App. LEXIS 23718 (11th Cir. 11/2010).Trade Secrets

Inevitable Disclosure - See W.L. Gore & Assoc, Inc. v. Wu, Civil Action No. 263-N, 2006 Del. Ch. LEXIS 176 (Del. Ch. Sept. 15, 2006) re five years for specialty area.