Jordan Davis
Staff Editor, Delaware Journal of Corporate Law, Volume 50
Introduction
Despite Delaware being a contractarian state, the courts do not mechanically enforce noncompete and non-solicitation agreements.[1] Instead, these restrictive covenants are reviewed to ensure that they (1) are reasonable in scope and duration, geographically and temporally; (2) advance legitimate economic interests of the party seeking enforcement; and (3) survive a balancing of the equities.[2] When faced with an unreasonable or overbroad restrictive covenant, Delaware courts may exercise their discretion to “blue pencil” (or to modify and strike unreasonable terms) to make the restrictions acceptable and enforceable.[3]
Recently, however, Delaware courts have not been willing to blue pencil restrictive covenants that are unreasonable in part, or where there was a disparity in bargaining power between the parties to the contact.[4] Unequal bargaining power appears in circumstances where the specific terms of a restrictive covenant are not specifically negotiated, or where invaluable consideration is exchanged for the covenant.[5] This is most notable in the employment context given the vast difference in resources, bargaining power, and access to information available between employers and their employees.[6]
It is easy to understand the reluctance to blue pencil overboard or unreasonable restrictive covenants in the employment context. Employers have the means and motives to invest in legal services, to create the most advantageous restrictions, and to insist that employees sign covenants/contracts.[7] Employees lack these means, and would have to retain their own independent counsel to review and negotiate the terms.[8] If Delaware courts blue penciled restrictive covenants under these circumstances, employers might be incentivized to draft the broadest restrictive covenants to see what they could get away with since the courts would just blue pencil them to make them acceptable.[9]
With the downward trend of blue penciling restrictive covenants in the employment context, it is critical for employers to ensure that any such covenants are properly drafted to ensure they are reasonable in scope. A recent Delaware Supreme Court case—Sunder II—provides some helpful insight into those requirements, and touches upon some precautionary measures that, if taken by the employer, may increase the probability that a court will exercise its discretion to blue pencil the agreement.[10]
A Reasonable Geographic and Temporal Scope
When determining the enforceability of a noncompete or non-solicitation agreement, Delaware courts first consider whether the geographic and temporal restrictions are reasonable in scope and duration.[11] The scope of reasonableness turns upon whether the restriction is in the context of the sale of a business or an employment agreement. Courts permit a broader scope of reasonableness in the context of the sale of a business, whereas a narrower scope is needed for employment agreements.[12] In either situation, the reasonableness of any restriction is determined by whether it references areas that the employer has a legitimate economic interest in.[13]
Delaware courts consider how the geographic and temporal restrictions operate against one another.[14] The temporal duration largely depends on the type of activity restricted, as well as the geographic scope.[15] However, if it has the potential to last indefinitely, courts are more likely to find the restriction to be unreasonable.[16]
The geographic scope of a restrictive covenant is reasonable if it is tailored to areas where an employer conducts its business.[17] This could be any area where the employer has an existing customer base. If an employee gains an advantage throughout their employment over any part of the employer’s market—nationally or internationally—a restriction to not solicit potential customers in those geographical areas may be reasonable and appropriate.[18] However, if the restriction prohibits the employee from seeking out employment in the same geographic areas, it will be seen as an overbroad restriction as it burdens the employee’s ability to find later employment and to secure their livelihood.[19]
Advancing the Employer’s Legitimate Economic Interests
A noncompete or non-solicitation agreement must be essential to protect the employer’s legitimate economic interests.[20] In the employment context, Delaware courts recognize that employers have an interest in protecting their own goodwill, as well as protecting the misuse of their confidential information.[21] If the geographic scope of a restrictive covenant is overbroad, the employer will have to show a strong economic interest for it/the covenant to be enforceable.[22]
It is important for restrictions to be tailored to the employer’s legitimate interests by narrowing the scope to cover similar activities or business the employer is engaged in.[23] Restrictive covenants become problematic when the prohibited activity sweeps across an entire industry without regard to whether the prospective future employer engages in similar work, in the similar markets, or sells similar products as the current employer.[24]
In addition, the terms of restriction, such as whom it covers and applies to, should not be unreasonably broad. For example, the Sunder court found a restrictive covenant that was construed to prohibit employment in the entire door-to-door sales industry to be overbroad, in part since it applied to both the employee and his affiliates, which included his spouse, parents, siblings, and children.[25] The restriction essentially prevented the employee’s daughter from going door-to-door to sell Girl Scout cookies.[26] However, it appears that such a restriction may be reasonable if it is limited to the purpose of preventing the employee from indirectly violating the restrictions.[27]
Surviving a Balance of the Equities
Finally, Delaware courts balance the interests sought to be protected by the employer against the harm that would result from enforcing the restrictive covenant.[28] At this stage, courts may take into consideration whether the employee received any consideration in exchange to be bound by the restrictive covenants.[29] Nevertheless, restrictive covenants will not be enforced if doing so would impose an “unusual hardship” on the employee.[30]
In addition, Delaware courts may also consider the geographic scope and temporal duration of the restrictive covenant.[31] If there is an overbroad or unreasonable restriction on the geographic scope, courts will not enforce the restrictive covenant since the employee’s ability to find employment could be burdened.[32]
Discretion to Blue Pencil Overbroad Restrictive Covenants
Even though there is no bright-line rule in Delaware for when a court can blue pencil an overbroad or unreasonable restrictive covenant, there are certain situations where courts may be more willing to exercise their discretion and blue pencil.[33] Such situations include when the court can reasonably modify the geographic scope without unreasonably restraining trade, or where the parties to contract have an equal bargaining power.[34] The latter may be established if the terms are specifically negotiated, or where valuable consideration is exchanged for the restriction.[35]
Final Considerations
Ultimately, employers should be incentivized to create reasonable restrictive covenants from the start. They should not be relying on the court to later blue pencil it to make it reasonable. Employers should attempt to align restrictive covenants to protect and advance the employer’s legitimate economic interest.[36] As a safeguard, employers can also involve the employee in negotiations or discussions concerning the restrictive covenant, and ensure there is sufficient time for the employee to understand its terms by having the opportunity to retain legal counsel.[37] In addition, employers should ensure that in exchange for the restrictive covenant, the employee receives adequate compensation.[38] When these precautions and measures are taken, Delaware courts may be more inclined to find an equality in bargaining power, thus exercising their discretion to blue pencil an overbroad or unreasonable restrictive covenant.
About the Author
Jordan is a third-year law student at Widener University Delaware School of Law and will be sitting for the July 2025 Pennsylvania Bar Exam. Jordan is a Staff Editor for Volume 50 of the Delaware Journal of Corporation Law. He graduated from Saint Joseph’s University and earned his bachelor’s degree in Political Science. In his free time, Jordan enjoys playing chess, working out, and watching Philly sports.
[1] See Labyrinth, Inc. v. Urich, No. 2023-0327, 2024 WL 295996, at *23 (Del. Ch. Jan. 26, 2024).
[2] Sunder Energy, LLC v. Jackson, No. 455, 2023, 2024 WL 5052887, at *8 (Del. Dec. 10, 2024) (“Sunder II”), aff’g in part, rev’g in part 305 A.3d 723 (Del. Ch. 2023) (“Sunder I”).
[3] Kodiak Bldg. Partners, LLC v. Adams, No. 2022-0311, 2022 WL 5240507, at *4 n.49 (Del. Ch. Oct. 6, 2022) (“Kodiak”).
[4] See Sunder II, 2024 WL 5052887, at *8.
[5] Id.
[6] See Del. Elevator, Inc. v. Williams, No. CIV.A. 5596, 2011 WL 1005181, at *11 (Del. Ch. Mar. 16, 2011) (“Elevator”).
[7] Id.
[8] Id.
[9] See id. at *10.
[10] See Sunder II, 2024 WL 5052887, at *8–12.
[11] Elite Cleaning Co. v. Capel, No. CIV.A. 690, 2006 WL 1565161, at *3 (Del. Ch. June 2, 2006).
[12] Kodiak, No. 2022-0311, 2022 WL 5240507, at *11 (Del. Ch. Oct. 6, 2022).
[13] Id.; see also discussion infra Section III.
[14] Elevator, 2011 WL 1005181, at *8.
[15] See Sunder I, 305 A.3d 723, 753 (Del. Ch. 2023).
[16] See Sunder II, No. 455, 2023, 2024 WL 5052887, at *11 (Del. Dec. 10, 2024).
[17] Sunder I, 305 A3d at 756.
[18] See Del. Exp. Shuttle, Inc. v. Older, No. CIV.A. 19596, 2002 WL 31458243, at *13 (Del. Ch. Oct. 23, 2002) (quoting Rsch. & Trading Corp. v. Pfuhl, No. CIV. A. 12527, 1992 WL 345465, at *12 (Del. Ch. Nov. 18, 1992)).
[19] See Sunder I, 305 A.3d at 756; see also Cleveland Integrity Servs., LLC v. Byers, No. 2024-0371, 2025 WL 658369, at *11–12 (Del. Ch. Feb. 28, 2025) (comparing the geographic scope between a restriction prohibiting soliciting customers and a restriction prohibiting seeking in employment).
[20] Kodiak, No. 2022-0311, 2022 WL 5240507, at *8 (Del. Ch. Oct. 6, 2022).
[21] Id.
[22] FP UC Holdings, LLC v. Hamilton, No. CV 2019-1029, 2020 WL 1492783, at *7 (Del. Ch. Mar. 27, 2020) (“Hamilton”); see also discussion supra Section II.
[23] See, e.g., Sunder I, 305 A.3d at 755 (Del. Ch. 2023) (declining to blue pencil a noncompete where the company engaged in solar sales but restricted unrelated activity, such as pest control, alarms, solar, satellite, TV and wireless internet).
[24] See Sunder II, No. 455, 2023, 2024 WL 5052887, at *11 (Del. Dec. 10, 2024).
[25] Id. at *11–12; Sunder I, 305 A.3d at 755–56.
[26] Sunder II, 2024 WL 5052887, at *11 (quoting Sunder I, 305 A.3d at 756).
[27] See Sunder I, 305 A.3d at 756.
[28] Hamilton, No. CV 2019-1029, 2020 WL 1492783, at *6 (Del. Ch. Mar. 27, 2020).
[29] Id.
[30] Id.
[31] Id.; see also discussion supra Sections II–III.
[32] See Hamilton, 2020 WL 1492783, at *6.
[33] See Sunder II, No. 455, 2023, 2024 WL 5052887, at *9–12 (Del. Dec. 10, 2024).
[34] Id. at *8–10.
[35] Id. at *8.
[36] See id.; see also discussion supra Sections II–III.
[37] See Sunder II, 2024 WL 5052887, at *10.
[38] Id. at *11.
Leave a Reply