Drafting an Enforceable Covenant Not to Compete

Many employers use restrictive covenants (also called noncompetition agreements or non-competes) to protect against unfair competition from ex-employees. In Delaware, noncompetition agreements are enforced in the Court of Chancery, our world-renowned court of equity. The Court of Chancery has the power to issue injunctions, or orders, to stop employees from doing things like soliciting your clients or employees and, in some cases, working for a competitor.

But not all restrictive covenants are valid. Careful employers should begin to scrutinize their restrictive covenants to make certain they meet the following requirements:

First, make sure you’re protecting a legitimate business interest, not simply trying to exercise economic control over your employees or competitors. To determine if your business interest qualifies, focus on the nature of your business, your customers, and competitors and what information the employee will have access to that could be used unfairly against you by a competitor.

Second, make certain your restrictive covenant is reasonable in its scope and duration. Don’t count on a court to “reform” a poorly drafted restrictive covenant that’s overly broad or vague. Review the scope and duration of your non-compete, keeping in mind that their reasonableness is tied directly to the interests the covenant is designed to protect, the type of job the employee has, and the nature of the industry you’re in. Most important, remember that the mere fact that a restriction prohibiting competition within, say, 100 miles for two years is reasonable in one case doesn’t mean it’s reasonable in all cases.

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