Continued Employment
Maximum Term
Choosing Delaware as the “Governing Law”
Selecting Delaware as the “Governing Law” in a non-compete may not uphold in court if the employees are not actively working in the State. In two recent court cases, FP UC Holdings v. Hamilton (2020) and Ascension Ins. Holdings, LLC v. Underwood, both petitioners were incorporated in Delaware, although, had a principal place of business outside the State.
In addition, since both employees were working and violated their respective non-competes outside of Delaware, the agreements were not honored by the Chancery Court.
Therefore, it is recommended to select the State of governing law in a non-compete where the employees are actively working or residing.
Blue Penciling Not Allowed
Blue penciling is no longer allowed. In 2011, the Court of Chancery changed its position on blue-penciling due to the advantage it gives an employer in a non-compete.This is due to an employer having the option to simply make an agreement overbroad and unreasonable. In a worst-case scenario, the court will then have to make amendments to limit the employee.
This process puts the employer in a “no-lose position” as stated below by the court:
More importantly, a court should not save a facially invalid provision by rewriting it and enforcing only what the court deems reasonable. Doing so puts the employer in a no-lose position. If an employer knows that the court will enforce a reasonable covenant as a fallback, the employer has every reason to start with an overbroad provision.[5]