Delaware Law On Non-Compete Agreements

When Underwood ended its employment relationship with Ascension, the five-year ban on competition was lifted as part of the asset sale agreement. However, the separate non-compete clause in Underwood`s employment contract provided for a two-year tail at the end of employment, which made it clear that this had been explicitly considered during negotiations when Underwood took over. Previously, we discussed on the blog how competition bans are considered void in California, unless they fulfill one of two very strict legal exceptions. A recent decision of the Delaware Court of Chancery highlighted the scope and effect of this presumption by maintaining a California worker`s right to a contract despite a non-compete clause in an employment contract governed by Delaware law. Second, while employers often choose Delaware law, at least in part, because Delaware courts have long allowed legal changes or “blue-penciling” of overly broad agreements, FP UC Holdings` decision is a reminder that even Delaware courts have their limits and blue-penciling is entirely left to the discretion of the court and should therefore be reliable with caution. The attempt to impose a national non-competition clause, for example when the employer is limited in its company to a part of the United States, places the employer in a certain hole. Non-compete agreements, also known as non-compete or restrictive agreements, are employment contracts used by employers to limit a worker`s ability to compete with the employer through customer theft or trade secrets. Enforceable agreements must strike a balance between protecting the employer`s legitimate business interests against unfair competitive advantage and the worker`s right to work in a field for which he or she is trained. As a general rule, courts determine what is considered appropriate or inappropriate by examining the nature and size of the undertaking, the duration and geographical area of the restrictions and whether the worker received reasonable consideration or advantage at the time of signing the contract.

The non-competition clause provided that during his employment and for one year after his departure, the worker “could neither manage, manage, control, participate, nor provide services (including as a consultant or consultant) to a person involved in an enterprise (or providing financial assistance or any other participation in the enterprise), that offers a product or service with a product or service offered by the company. A recent notice from the Delaware Chancery Court explained Delaware`s approach to amending or modifying the “blue pencil” of excessively broad non-compete agreements and deferral to the parties` choice rules. The case, FP UC Holdings, LLC, et al.v. James W. Hamilton, Jr., et al., C.A. No. 2019-1029-JRS (Del Ch. Mar. 27, 2020), stresses the importance of developing well-tailored restrictive agreements and shows that even in Delaware – where employers often have to make careful formulation and legal choice decisions by the relative willingness of the courts to apply problematic agreements and apply Delaware law to factual models that have developed in other states – employers must make decisions about legal formulation and choice.

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