Business agreements often contain a provision that provides the parties agree that a breach constitutes irreparable harm entitling the non-breaching party to injunctive relief to enforce the agreement. These provisions are designed to protect the terms of the agreement and make it easier for the non-breaching party to secure an injunction while a claim is pending. In Martin Marietta Materials v. Vulcan Materials, the Delaware Supreme Court held that contractual provisions as to irreparable harm suffice to establish that element for the purpose of issuing injunctive relief.
In the area of noncompete agreements, employers often use these provisions as a means to “stipulate” that a violation would cause irreparable harm and thus entitle the company to an injunction preventing the employee from working competitively. Whether a court applying Delaware law will honor such a provision contained in an employment noncompete — and issue a preliminary injunction in the case of a breach — is another matter. While no Delaware court has formally ruled on this issue, here are a few key points to keep in mind.
First, it is clear that not all contractual provisions stipulating to irreparable injury will be automatically enforced. While generally Delaware courts give the parties broad leeway to determine the terms of an agreement, they will not enforce stipulated harm provisions where there is a danger that they could have the effect of “confer[ring] equitable jurisdiction” when there is none, or if there is clearly an available remedy of law. Gildor v. Optical Solutions, Inc., C.A. No. 1416-N (Del. Ch. June 5, 2006) (“Delaware courts do not lightly trump the freedom to contract and, in the absence of some countervailing public policy interest, courts should respect the parties’ bargain. … [A]s long as the parties did not include the irreparable harm stipulation as a sham, i.e., when an adequate remedy at law clearly exists, or simply as a means to confer jurisdiction on this court, then the stipulation will be upheld”).