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October 22, 2025
The Delaware Chancery Court recently struck down nationwide non-competition provisions included in two equity interest award agreements, continuing a trend in Delaware of refusing to enforce overly broad restrictive covenants. In Payscale Inc. v. Erin Norman and Bettercomp, Inc.,[1] the Court granted a Motion to Dismiss for failure to state a claim, finding the provisions contained in the equity agreements overly broad and emphasizing that the geographic and temporal scope of such provisions must be reasonable and supported by substantial consideration.
Overview of the Facts
Payscale Inc. (“Payscale”) provides compensation data, software, and other services across the United States. Erin Norman (“Norman”) worked for Payscale as a Director of Sales for nearly two years, from 2021 to 2023.
Payscale (through its parent holding company, non-party Sonic Topco, L.P. (“Topco”)) and Norman entered into two incentive equity interest agreements, each of which contained a similar non-competition provision. The non-competition provisions prohibited Norman, for 18 months after her employment ended, from engaging in any “Competitive Activity” (defined as to “own, manage, operate, control, participate in, render services for, or in any other manner engage in, anywhere in the United States, any Competitive Business other than for or on behalf of [Topco] or any Subsidiary of [Topco].”) The agreements define “Competitive Business” as “any business conducted by [Topco] or any of its Subsidiaries as of [Norman]’s Separation Date or any business proposed to be conducted by [Topco] or any of its Subsidiaries as evidenced by a written business plan in effect prior to [Norman]’s Separation Date.”
The Court summed up the non-competition provisions as follows: for “an eighteen-month period, Norman is prohibited from working anywhere in the country, in almost any role, for any company engaged in business that Topco or its subsidiaries were conducting or had proposed to conduct as of Norman’s departure.” Violation of the non-competition provisions would result in cancellation of Norman’s equity interest.
Norman left Payscale in December 2023 and joined competitor, Bettercomp, Inc. (“Bettercomp”), ten months later in October 2024. Payscale sued Norman and Bettercomp to enforce the restrictive covenant provisions of the equity award agreements.
Reasoning of the Chancery Court
The Court noted that Delaware courts do not “mechanically” enforce non-competition provisions; rather, such provisions are “closely scrutinized as restrictive of trade.” Reasonable non-competition provisions that advance a legitimate economic interest, however, remain enforceable.
The Court demonstrated that it will not enforce non-competition provisions—like Norman’s—that prohibit nationwide work in almost any capacity, where the provisions fail to protect a legitimate business interest. While the Court noted that a nationwide scope is not per se unenforceable, such broad provisions will be enforced “only in instances where the competing party agrees, in connection with the sale of a business, to stand down from competing in the relevant industry . . . anywhere . . . for a stated period of time after the sale.” Further, the Court found that Payscale provided “only minimal consideration” to secure the nationwide non-competition provisions in the form of the cancellable equity interest.
Critically, the Court held that the scope of the non-competition provisions was broader than necessary to protect Payscale’s legitimate business interests. The provisions prohibited Norman from working in the same line of business as not only Payscale, but also its parent company’s other subsidiaries, even though Norman “is not alleged to have any special knowledge of [the parent company’s] business that it conceivably could have an interest in protecting.”
The Court also declined to “blue pencil” (i.e., revise), the non-competition provisions to render them enforceable, determining that the Complaint failed to allege facts that could warrant doing so.
Take Aways
This decision by the Chancery Court continues a discernable trend by Delaware courts to closely scrutinize non-competition agreements tied to equity incentive awards. This trend should signal to employers (and counsel drafting the agreements) that such restrictive covenants will be increasingly difficult to enforce without carefully crafted language. Reasonableness, of course, remains the standard and employers must draft non-competition provisions that are designed to protect a legitimate business interest, are geographically and temporally reasonable, and are supported by meaningful consideration.
The author of this article, Andrew M. DeLucia, is a member of the Bars of Pennsylvania and New Jersey. This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in Pennsylvania, New, Jersey, Delaware, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist. Always consult an attorney with specific legal issues.
[1] No. 2025-0118-BWD, 2025 Del. Ch. LEXIS 141 (June 9, 2025).
