As you may know, I provide employment law advice to our teams here at Offit Kurman, assisting our clients in company sales. In that capacity, and because I also draft restrictive covenants for businesses, I try to update my business clients on the latest news regarding non-competition clauses. The Delaware Court of Chancery recently gave us some good information regarding limits that buyers may place on sellers in terms of competing with the sold business. Many deals across the United States are written in accordance with Delaware law, so it has a wide-ranging impact.
Recently the Court of Chancery clarified that non-competes which try to prevent a seller from competing with a buyer’s pre-existing business are not enforceable. Kodiak Building Partners, LLC v. Adams, C.A. No. 2022-0311 (Del. Ch. Oct. 6, 2022). Such promises are only enforceable to the extent that they protect the buyer’s interest in the assets or company purchased in the deal.
Even more interesting because of its larger potential effect on employment agreement non-competes is the Court’s holding that a seller’s promise in a purchase agreement not to challenge the reasonableness of a restrictive covenant means nothing. It is up to the Court to determine the reasonableness of the terms according to Delaware law. If your company wants a binding agreement, it is worthless to have a party promise that the non-compete is reasonable. I’d argue that this decision extends to employment agreement non-competes because the Court made the ruling based on public policy, which applies to all areas of law.
Consult a Delaware lawyer with up-to-date non-compete knowledge to draft your sales and employment agreements. The Court continues to move in favor of allowing free competition.
ABOUT KATHERINE WITHERSPOON FRY
For over 25 years, Katherine has provided her clients with robust representation in matters of employment and related business law. Katherine represents and counsels employers and executives in all facets of the employment relationship, including hiring, termination, discrimination, non-competition, Fair Labor Standards Act matters, issues regarding Family and Medical Leave and other leaves, whistleblowers’ complaints, and regulatory matters. As a litigator, she is well aware of the nuances of law necessary to draft effective restrictive covenants, severance agreements, and employment contracts. Along with her over 250 colleagues, she represents companies and non-profit organizations of all sizes. She has defended companies under investigation by both U.S. and state Departments of Labor and handled multiple matters before the EEOC.
ABOUT OFFIT KURMAN
Offit Kurman, one of the fastest-growing, full-service law firms in the United States, serves dynamic businesses, individuals and families. With 18 offices and more than 250 lawyers who counsel clients across more than 30 areas of practice, Offit Kurman helps maximize and protect business value and personal wealth by providing innovative and entrepreneurial counsel that focuses on clients’ business objectives, interests and goals. The firm is distinguished by the quality, breadth and global reach of its legal services and a unique operational structure that encourages a culture of collaboration. For more information, visit www.offitkurman.com.
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