The Enforceability of Noncompete Agreements in Delaware

Employees who sign noncompete agreements promise not to compete with their then employer for a certain period of time after termination.  This means that the employee cannot compete directly, by soliciting customers of the employer or unfairly, by using information, knowledge, or contacts obtained by the employee during this employment in a way that would harm the employer after the relationship ends.

Litigation of noncompete agreements can be very costly.  At the same time, though, such litigation is often necessary to protect the vital interests of the business.  Another problem with litigating a noncompete agreement is the difficulty in proving the breach.  The former employer may suspect that the employee has taken vital information in violation of his agreement, but this may be very difficult to actually prove.

Developments in the world of computer forensics is making this difficulty less and less of an issue.  Thanks to this branch of science, employers are able to determine whether certain information has been improperly accessed, copied, or even deleted.

The courts in Delaware have a long relationship with noncompete agreements.  Delaware, considered by many as a “pro-business” state, has a history of enforcing reasonable noncompetition and nonsolicitation agreements.  The standards for determining enforceability are largely the same as those used by other states’ courts with one exception.

In most states, the law requires some form of consideration for the agreement other than continued employment.  In short, in most states, an employer who approaches a current employee and says, “Sign this noncompete agreement or you’re fired” will not have any luck enforcing that agreement.  Instead, those states require the employer to offer some additional form of consideration.  This can be satisfied by presenting the noncompete agreement at the time of hire–i.e., we’ll give you a job if you give us your promise not to compete when you leave–or by a promotion, raise, or just plain cash.  The logic is sound–an employee who will be offered a promotion to a higher level position with higher level access to sensitive information can be required to promise not to abuse that access.  If an employer doesn’t offer “something for something,” as the saying goes, the agreement, like any other contract, will not be enforceable by the courts.

Except, that is, in Delaware.  In Delaware, and especially in the Delaware Court of Chancery, one of the few equitable courts in the entire country, there is no need for any “additional” consideration.  In Delaware, the simple promise of continued employment is sufficient.  And by “continued employment,” we do not mean an employment contract or a promise to employee the individual for any given period of time.

Instead, because Delaware is an “at-will” state, where an employer can fire an employee at any time for any (lawful) reason, or for no reason at all, the mere fact that the employer promises not to terminate the employee at that minute is enough consideration.  So, if you are an employee in the First State of Delaware, and your Delaware employer comes up to you and says, “Sign here or you’re fired,” don’t assume that the employer is totally off-base.  Although this might be the case in most states, in Delaware, it’s just not so.