Enforcement of noncompete agreements is typically governed by state law, so knowing which state’s law applies is an important question both for drafting and enforcement purposes. Knowing what law will apply is particularly relevant if any of the parties are located in states which disfavor or even refuse to enforce noncompete agreements (think California). A recent decision from the Delaware Superior Court may add clarification whether businesses can utilize choice-of-law provisions to increase the enforceability of their noncompete agreements.
A Delaware choice-of-law provision provides that, if litigation arises over the terms of a contract, that the law to be applied to the contract will be Delaware contract law (as opposed to the law of the state where the employer or employee is located). Delaware follows the Restatement (Second) of Conflicts § 187 which provides that if the contracting parties designate a certain state’s laws to apply:
(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either: