By: Kylie Lutz
I. Introduction
Non-compete agreements restrain job mobility and economic growth. Indeed, “[th]e free flow of talent and ideas creates innovation. When that movement is restricted by non-compete agreements, it’s bad for employees, companies, and the economy.”[1] Yet it comes as no surprise that about 38% of the U.S. labor force have agreed to a non-compete at some point in their lives, and that roughly 1 in 5 Americans currently work under one.[2] In today’s fast-paced economy, employees rarely spend their entire careers with a single employer.[3] Significantly, with such a competitive job market marked by wage disparities, companies often recruit talent from their competitors by offering higher pay and better benefits.[4] At first glance, it may seem self-evident that employers should use non-compete agreements to prevent departing employees from joining competitors.[5] But here’s the catch: non-compete agreements can significantly restrict job mobility, suppress wages, and harm the financial income of the average American family.[6] And their intent is not always known. In some instances, employers implement non-competes as a threat, even when the employer knows the agreements are likely unenforceable under the applicable state law.[7] Because of such competing interest, many states have opted to enact laws or propose legislation that would limit or restrict their use.[8] No such laws currently exist in Delaware, but the state has strayed away from its contractarian views and has developed a heightened scrutiny with respect to non-compete agreements in the employment context.[9]
II. Non-competes Generally
Non-compete agreements, also called restrictive covenants, are “post-employment restrictions that prohibit departing employees from joining or starting a competing enterprise, typically within time and geographical boundaries.”[10] Designed to prevent former employees from competing with their employers, non-compete agreements must strike a balance between competing interests: the employer’s desire to protect confidential information and hard earned client relationships, and the employees’ interests in maintaining the flexibility to change jobs and seek competitive compensation for their skills.[11] Although non-compete agreements are commonly viewed as part of an employee’s initial offer, one study found that 70% of individuals were asked to sign such agreements only after receiving their job offer or even after beginning employment.[12] And, non-compete agreements affect every industry, not just the high-skilled, high-paying positions such as those in technology or among C-suite executives.[13] They are also prevalent in industries where employees often lack access to confidential information, including health care and low-wage jobs where workers earn less than $40,000 per year.[14] The law surrounding non-competes vary between states.[15] Most states favor the employees’ interests due to their relatively weaker bargaining power.[16] For example, California broadly prohibits non-compete agreements.[17] In turn, the state has sparked the increase in tech companies which would not have been possible if non-competes were still at play.[18]
III. Delaware’s Heightened Scrutiny of Employee Non-competes
Common law governs non-compete agreements in Delaware. A Delaware court will only enforce a non-compete agreement that (1) meets general contract law requirements; (2) is reasonable in geographic scope and duration; (3) advances legitimate economic interests of the party seeking enforcement; and (4) survives a balancing of the equities.[19] And like any contract, the non-compete must be supported by adequate consideration, where courts have found that employment itself or continued employment may suffice.[20] Because Delaware is historically a business-friendly state, non-compete agreements are generally enforceable.[21] But, the Delaware Court of Chancery has been increasingly critical to non-compete agreements, specifically in the employment context.[22]
Recently, the Delaware Court of Chancery dismissed a lawsuit brought by a software company against its former sales executive, holding that the non-compete agreement was too broad and vague and therefore unenforceable under Delaware law.[23] In Daxco, LLC v. Timm, Daxco and its parent company sued their former Vice President of small and medium business sales (“Timm”) for breach of a non-compete agreement executed as a condition of his promotion.[24] Daxco, a provider of software platforms for gyms and wellness businesses, required Timm to sign an Award Agreement containing a restrictive covenant that broadly prohibited him, for twenty-four months after leaving Daxco, from working for any company that directly or indirectly provided software to health and wellness businesses, including competitors of Daxco’s affiliates.[25] In exchange, Timm received 150,000 Class P units, half of which were contingent on meeting specified sales benchmarks.[26] After leaving the company one year later to join a competitor, Daxco initiated suit.[27]
The Court held the non-compete unenforceable, concluding that although Daxco had a legitimate interest in protecting its confidential information, the restriction was overbroad and insufficiently tailored to Timm’s role.[28] The non-compete effectively barred employment across a geographic region and industry unrelated to Timm’s role as executive of small and medium business sales.[29] The Court further questioned the adequacy of the consideration, emphasizing that a substantial portion of the units Timm received were contingent on performance outside of Timm’s control.[30]
IV. Conclusion
As Delaware courts continue to analyze employee non-compete agreements with heightened scrutiny, decisions like Daxco signal Delaware’s non-mechanical enforcement of non-compete agreements.[31] This approach recognizes that overbroad restrictions not only exceed employer’s legitimate interests but undermine job mobility and economic growth.[32] Going forward, employers should continue to narrowly tailor their non-compete agreements in scope, geographic region, and function or risk unenforceability.
About the Author
Kylie Lutz is a second-year regular division student at Widener University Delaware Law School. She serves as a Staff Editor for Volume 51 of the Delaware Journal of Corporate Law and is the incoming External Managing Editor for Volume 52. Kylie previously served as a judicial intern at the Delaware Court of Chancery for the Honorable Magistrate Christian Douglas Wright and in the summer of 2026, she will be a summer associate at Saul Ewing, LLP in Wilmington, Delaware. Kylie will also be returning to the Delaware Court of Chancery as a Josiah Oliver Wolcott Fellow for the 2026–27 academic year. Her other extracurricular activities include serving as the Competition Chair and the incoming President for the Alternative Dispute Resolution Society.
[1] Peter Gassner, Non-competes Are Bad for Employees and the Economy, Medium (Jul. 14, 2021), https://medium.com/@peter.gassner/non-competes-are-bad-for-employees-and-the-economy-bf2a69c123b7.
[2] Id.
[3] Scott A. Holt, Noncompetition Agreements: Protecting Your Business From Unfair Competition, 5 Del. Empl. L. Letter 4 (2000).
[4] Id.
[5] Id.
[6] Gassner, supra note 1; Matt Marx & Ryan Nunn, The Chilling Effect of Noncompete Agreements, The Hamilton Project (May 20, 2018), https://www.hamiltonproject.org/publication/post/the-chilling-effect-of-non-compete-agreements/.
[7] Marx & Nunn, supra note 6.
[8] Scott Holt, New Hires Can Lead to Lawsuits: Untangling the Strings Attached to Prospective Employees, 23 Del. Empl. L. Letter 3 (2018).
[9] Id.
[10] Evan Starr, J.J. Prescott & Norman D. Bishara, Noncompete Agreements in the U.S. Labor Force, 64 J. of L. and Econ. 1, 1 (2020).
[11] Holt, supra note 3; see also Young Conaway Stargatt, Taylor, LLP, Employers May Face New Challenges in Drafting Noncompetes, 18 Del. Empl. L. Letter 2 (2013).
[12] Marx & Nunn, supra note 6.
[13] Emily McGrath, Why Noncompete Agreements Don’t Work, Economic Opportunity (Jul. 24, 2023) https://tcf.org/content/commentary/why-noncompete-agreements-dont-work/.
[14] Id.
[15] Young Conaway Stargatt, Taylor, LLP, supra note 11.
[16] Id.
[17] Gassner, supra note 1.
[18] Id.
[19] See Tristate Courier and Carriage, Inc. v. Berryman, No. C.A. 20574-NC., 2004 WL 835886 at *10 (Del. Ch. Apr. 15, 2004).
[20] See RHIS, Inc. v. Boyce, No. Civ.A. 18924, 2001 WL 1192203 at *3 (Del. Ch. Sept. 26, 2001).
[21] Lilli Johanknecht, How the FTC May Reshape M&A Transactions, 76 Wash. Univ. J of L & Pol’y 238, 247 (2025).
[22] See generally Centurian Serv. Grp., LLC v. Wilensky, No. 2023-0422-MTZ, 2023 WL 5624156 (Del. Ch. Aug. 31, 2023).
[23] See Daxco, LLC v. Timm, No. 2025-0942-DH, 2026 WL172862 at *1 (Del. Ch. Jan. 22, 2026).
[24] See generally Daxco, LLC, 2026 WL172862.
[25] See id. at *1, 3.
[26] See id. at *3.
[27] Daxco, LLC, 2026 WL17862 at *5.
[28] See id. at *6–7.
[29] See id. at *6.
[30] See id. at *10.
[31] See Kodiak Bldg. P’rs, LLC v. Adams No. 2022-0311-MTZ, 2022 WL 5240507 at *4 (Del. Ch. Oct. 6, 2022).
[32] See BankUnited, N.A. v. Shulick, No. 2025-0956-BWD, 2026 WL 21637 at *9 (Del. Ch. Jan. 2, 2026).
Leave a Reply