What Delaware’s Latest Decision Teaches About Drafting Enforceable Noncompetes and Nonsolicits

Noncompetes are under pressure. Federal regulators have wanted to ban them. States like California, Minnesota, and Oklahoma already have. And even where they remain technically legal, courts are increasingly skeptical—especially when the restrictions go further than necessary.

Because a large part of my practice involves reviewing employment and equity agreements as part of M&A due diligence, I closely track how courts approach restrictive covenants. These provisions often show up in deal-related documents with the assumption that they’ll hold up. But increasingly, that’s a risky assumption.

A recent Delaware Court of Chancery decision makes that clear. The court invalidated a noncompete clause in a company’s equity award agreement with its former Director of Sales—not because the individual was junior or the agreement informal, but because the noncompete (and nonsolicit) clauses were drafted too broadly. The ruling reinforces a growing trend: equity-based agreements are subject to the same enforceability standards as any other contract.

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TL;DR

A Delaware court recently struck down a noncompete in a director-level employee’s equity agreement, finding it overbroad and unenforceable. The noncompete barred work in any role, for any competitor, nationwide—and the court found no legitimate business interest to support it, in part because the related nonsolicit was itself overly broad. That provision reached all clients and prospects of the company and its affiliates, regardless of whether the employee had any relationship with them. The court refused to revise either clause, citing Delaware’s policy against “blue penciling” overbroad agreements between sophisticated parties. The takeaway: even high-level compensation plans need narrowly tailored restrictions.

👉 Read the full opinion here.

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Delaware Court Invalidates Overbroad Clauses in Employee’s Equity Agreement

The Chancery Court dismissed all claims brought by a company against its former Director of Sales, who joined a competitor. The employee had received “Profit Interest Units” in the company’s private equity parent, along with an 18-month noncompete and nonsolicit.

The company alleged the employee’s new job violated both clauses. The court disagreed—and dismissed the complaint in full.

Why the Court Said No

Under Delaware law, a restrictive covenant is enforceable only if it:

1. Protects a legitimate business interest (such as trade secrets or goodwill),
2. Is reasonable in geographic and temporal scope, and
3. Imposes no greater restraint than necessary.

The court found that the noncompete provision, compounded by the unlimited geographic scope of the nonsolicitation provision, failed all three parts of this test.

🚫 The Noncompete

The agreement prohibited the employee from:

“engag[ing] in a Competitive Activity . . . anywhere in the United States,” including “own[ing], manage[ing], operate[ing], control[ling], participat[ing] in, render[ing] services for, or in any other manner engag[ing] in” a Competitive Business for 18 months.

“Competitive Business” wasn’t limited to current competitors. It also included:

“any business proposed to be conducted . . . as evidenced by a written business plan.”

The court ruled that the noncompete was unenforceable due to lack of adequate consideration and its geographic and temporal overbreadth. Although 18 months alone isn’t unreasonable, the court examined other factors here. For instance, the court highlighted the “vanishingly small” consideration the Director of Sales received compared to the sale of the business. While not entirely illusory, the consideration was inadequate to justify an 18-month noncompete in practically any capacity for any competitive (or potentially competitive) business.

Additionally, the noncompete did not safeguard a legitimate business interest because it failed to clearly define which lines of business were off-limits, and the Director of Sales seemingly lacked any specialized knowledge of the business worth protecting.

🚫 The Nonsolicit

The nonsolicitation clause only made things worse. It prevented the employee from soliciting the company’s clients, customers, and even prospects. Therefore, it was not limited to individuals the employee had worked with, knew about, or had access to through confidential information. As a result, the restriction was more extensive than necessary and effectively created a worldwide noncompete.

How could the employee find employment anywhere without risking violation of a nonsolicitation clause that broadly prohibited soliciting unidentified prospective clients, which the employee had no way to identify or avoid? The court reasoned that this situation essentially prevented the employee from working in any role, for any actual or potential competitor, anywhere in the world – a restriction broader than necessary to protect any legitimate business interest.

✂️ No Blue Penciling

After finding both restrictions unenforceable, the court declined to narrow or rewrite them:

“The Court will not blue pencil the Noncompete.”

Why not? Delaware courts generally are more likely to “blue pencil” or rewrite an overbroad restrictive covenant when the agreement is between parties with equal bargaining power. Here, the employer seemingly had more power and did not allege that the parties negotiated the restrictive covenants. Instead, the company could have drafted narrower language, but chose not to. That it failed to do so was not the court’s problem.

A Pattern in Delaware Case Law

This decision fits a clear and growing trend. Recent Delaware rulings have struck down restrictive covenants that try to do too much:

• Overbroad geographic scope: In a separate case, the court struck down a nationwide noncompete that extended far beyond the employee’s role and was unsupported by meaningful consideration—terms that might be acceptable in a business sale, but not in ordinary employment.
• No judicial redrafting: Courts have refused to modify overreaching restrictions—even when the agreement is between sophisticated parties.
• Facial overbreadth is enough: Courts are willing to invalidate a covenant on its face without waiting for factual development or discovery.

The message: overbreadth alone can—and will—sink your restrictive covenant.

⚠️ Myth: Equity-based covenants are more enforceable

Reality: Delaware applies the same scrutiny to restrictive covenants in equity agreements as it does in employment contracts. Recent decisions confirm:

• Seniority doesn’t justify blanket restrictions

• Incentive pay doesn’t guarantee enforceability

• Forfeiture and clawback clauses don’t save a bad contract

🧠 If your restriction wouldn’t survive in a job offer, it won’t survive in an equity plan either.

Employer Takeaways (Delaware—and Beyond)

This case offers several key lessons under Delaware law—particularly for employers, HR professionals, in-house counsel, and deal teams working with Delaware choice-of-law provisions or governing entities incorporated there. But Delaware isn’t alone: courts in many jurisdictions are increasing their scrutiny of restrictive covenants and demanding tighter alignment between a company’s interest and the scope of the restriction.

🎯 Be specific

Tailor covenants to the employee’s role, territory, and actual exposure to risk.

🔍 Define your terms

Avoid restrictions that cover future business lines or affiliates the employee never interacted with.

🧭 Time and Territory Work Together

Delaware courts assess duration and geographic scope as interacting factors. A restriction that might be reasonable over 12 months could become excessive if it spans the entire U.S.—and vice versa. This court explicitly noted:

“A longer restrictive covenant will be more reasonable if geographically tempered, and a restrictive covenant covering a broader area will be more reasonable if temporally tailored.”

🚫 Don’t overreach on nonsolicits

Limit them to customers the employee worked with, knew about, or had access to through trade secrets or confidential business information.

✂️ Don’t expect courts to fix bad drafting

Delaware won’t blue pencil your covenant—especially in a sophisticated, negotiated agreement.

Final Thought

Restrictive covenants still have a place in employment and equity agreements—but only if they’re narrow, defensible, and proportional to real business risks. Delaware’s latest decision is a reminder that overreaching language will not be saved by context, compensation, or creativity.

If your clause tries to do too much, it may end up doing nothing at all.