Enforcement of Delaware Non-Compete Agreements
In Delaware, the courts will enforce a non-compete agreement if it (1) meets the general requirements of a contract, (2) is of reasonable scope geographically, (3) is of reasonable duration, and (4) protects the legitimate business interests of the employer without placing unreasonable restrictions on the employee.
What are the general requirements of a contract? In a recent Delaware court case, an employee who was being sued for violating his non-compete agreement argued that he was forced to sign the agreement and didn’t receive any additional compensation in exchange. In effect, his argument was a lack of consideration, which is one the essential requirements of a contract. The court ruled against the employee, stating that in Delaware, employment or continued employment can serve as consideration for an at-will employee’s agreement to a non-compete restriction.
Whether a restriction is reasonable in terms of the territory covered or the duration of the restriction is based on the facts of each particular case. In Delaware, a non-compete agreement that lasts 2 years or less is usually held to be reasonable. As to whether the geographic limit is reasonable depends on what’s necessary to protect the employer’s legitimate interests. The reasonableness of a geographic area isn’t necessarily determined by its physical distance but rather the area in which the employer has an interest which needs to be protected.
The term “legitimate business interests” has to do with the employer’s good will and relationships with employees and customers.
In deciding whether the restriction on the employee is unreasonable, one of the questions to be looked at is whether the restrictive covenant would prevent the employee from earning a living or continuing to pursue the same career.
