A recent Delaware Chancery Court opinion has elucidated Delaware’s approach to judicially modifying, or “blue-penciling,” overly broad noncompete agreements and deferring to parties’ choice of law provisions. The case, FP UC Holdings, LLC, et al. v. James W. Hamilton, Jr., et al., C.A. No. 2019-1029-JRS (Del Ch. Mar. 27, 2020), highlights the importance of drafting well-tailored restrictive covenants, and shows that even in Delaware – where employers often have been reassured by the safe harbor of courts’ relative willingness to blue-pencil problematic agreements and apply Delaware law to fact patterns that have developed in other states – employers must make careful drafting and choice of law decisions. It also emphasizes that if an employer’s intent is to litigate in Delaware, the employer should do so from the beginning, without acquiescing to another court’s jurisdiction.
The most recent installment of the Restricting Covenant Series was inspired by the Jeopardy! tournament “The Greatest of All Time,” where champion Ken Jennings edged out two other competitors to win the million-dollar prize. So, for the crossword and quiz show enthusiasts, here is the clue in the form of an answer (and the subject of this article): This 17-letter word means to cut out the middleman in connection with a transaction. Correct response: What is “disintermediation”? What does disintermediation have to do with noncompete agreements? Read on.
There are many notable east coast-west coast rivalries. In sports (Celtics versus Lakers basketball), in leisure (Atlantic versus Pacific beaches), or in food (Shake Shack versus In-N-Out Burger), to name a few. With respect to restrictive covenants, the conflict between Delaware, which is generally considered a “pro-enforcement” jurisdiction, and California, which is generally considered an “anti-enforcement” jurisdiction, definitely stands out in the crowd. This installment of the Restricting Covenant Series looks at the competing views of the Golden State and The First State’s on the enforceability of restrictive covenants, and the critical importance of conducting a “choice of law” analysis to settle this feud.
As we have previously discussed, there is an ongoing trend of states prohibiting the use of non-compete agreements in certain situations, including with lower-wage workers. Maine and New Hampshire are the most recent examples.
This latest installment of The Restricting Covenant series highlights the significant changes coming to Washington State regarding non-compete agreements (it’s a game changer), as well as similar legislation (passed and proposed) in other states including Massachusetts and New Jersey. Employers surely will feel the ripple effect of Washington’s new sweeping law on non-competes. Is this a sign of things to come for significant non-compete reform in other states coast to coast (“Winter is Coming,” anyone?).
Not too many topics related to restrictive covenants gain buzzworthy status. However, when state and federal governmental agencies and class action attorneys start filing lawsuits nationwide, and Fortune 500 companies in various industries start settling and agreeing to change the way they do business, well, that usually generates some buzz and attention. It seems that not a week goes by lately without a new headline discussing the latest hot-bottom issue in the world of restrictive covenants – “no-poaching” agreements.