Businesses frequently choose Delaware as the governing law and venue for enforcement when drafting many kinds of agreements, including non-competition covenants. Delaware is attractive for several reasons, including robust non-compete enforcement and sophisticated commercial courts. Recent opinions, however, are tightening the rules for getting into the Delaware courts, and for enforcing restrictive covenants once inside.
Delaware has long been a safe haven for all sorts of business matters. Companies are frequently formed in Delaware, and corporate transactional documents often select the state for governing law. In fact, more than 1,000,000 business entities have selected Delaware as their chosen domicile. However, most of those companies are headquartered elsewhere, and their employees have no connection with the state at all, other than perceived friendliness to business interests. In a series of recent opinions, the state’s Chancery Courts have been changing this narrative.
In recent months, Delaware Chancery Courts have made headlines by refusing to enforce restrictive covenants that would have historically passed muster — notably, even in covenants relating to the acquisition or sale of a Delaware-based business. Courts are taking a closer look at the choice of law provisions and diving deeper into what — if any — connection the dispute has to Delaware. Where the only connection to the state lies on paper (such as formation documents and choice of law) and the...
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