In this installment of LaborSpeak, we discuss the continuously-changing restrictive covenant landscape, particularly with regard to two recent cases that show that Delaware courts may be pushing back on the ability of employers to use non-competes.
Please click here to watch the video.
Our LaborSpeak video series examines critical trends and issues affecting employers nationwide. We invite you to subscribe to our YouTube channel, and you will be alerted as we drop new videos in the future.
Transcript
[Music]
in Prior labor speak videos we have discussed the rapidly changing restrictive covenant landscape in this video we turn our attention to Delaware in the past Delaware courts have been inconsistent and their enforcement of restricted covenants with two recent cases show that Delaware may be pushing back on the ability of employers to use an occupies in one case from last October Kodiak building Partners LLC of the atoms a Delaware LLC sought to enforce a restrictive covenant agreement against the former employee and stockholder where the agreement was entered into in this connection with the sale of a business generally of course you're usually more willing to enforce restrictive covenants agreed to in the sale of business context and then the employment context but in this case the Court held that the restrictive covenants were too broad as they extended to all the companies the LLC owned rather than only those connected to the individual another case decided earlier this month Ainsley fee Canada Fitzgerald LP involved six former counterfeiture partners who entered into canner's limited partnership agreement which contained a one-year Global non-compete a two-year Global non-solicit and a forfeiture for competition provision that conditioned payments from each partner's capital account and other payments related to the partnership interests on the partner not breaching non-compete and non-solicit restrictions for four years all the former partners in that lawsuit voluntarily withdrew from the partnership and went to work for a competing business as a result Canada refused to pay them the conditioned payments the Court held that the non-compete and non-solicit Provisions were unenforceable first because they were too geographically brought in Long second because they sought to prohibit actions taken against not just canner but any of Canada's Affiliated entities and third because it was solely up to the managing General partner to determine whether a partner had breached the restrictive covenant as a result the court also found that canner could not condition payments on compliance with these provisions further in a somewhat unusual move courts separately reviewed the reasonableness of the forfeiture Provisions finding them problematic because they withheld amounts were not connected to any loss can or suffered as a result of the competition the amounts would have been withheld regardless of the reason for termination and the provision was included as part of an agreement that the partners could not negotiate while many new state laws have focused their efforts on protecting non-executives and non-owners from restrictive covenants these two decisions protected high-level employees with an ownership interest in these cases the court struck down two types of restrictive covenants that we are used to seeing courts readily enforced a non-compete in the sale of business context and a forfeiture for competition provision these decisions further demonstrate the way of Manning against restrictive covenants across the country feel free to contact a member of our team if you have questions about these or any other issues relating to restrictive covenants [Music]