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March 31, 2026
Any AI agent will tell you that Delaware is widely considered the most corporate-friendly state in the United States. Nearly 70% of Fortune 500 companies are incorporated in Delaware. Yet, when it comes to enforcing a company’s post-employment restrictive covenants, Delaware courts are favoring departing employees. Two recent cases demonstrate the trend in Delaware courts to rigorously review restrictive covenant agreements for reasonableness before enforcement. This month, in BluSky Restoration Contractors, LLC v. Robbins & Popwell, the Chancery Court held that restrictive covenants, even in the sale-of-business context, must be reasonably tailored to the goodwill and competitive space acquired in the transaction. C.A. No. 2025-0726-DH (Del. Ch. Mar. 4, 2026). Several weeks earlier, in Fortiline, Inc. v. McCall, the Delaware Supreme Court affirmed that a reasonableness review applies to restrictive covenants regardless of whether a plaintiff seeks injunctive relief or only monetary damages. No. 300, 2025, 2026 LX 37764 (Feb. 10, 2026), aff’g, 341 A.3d 1027 (Del. Ch. 2025).
For companies buying companies, the BluSky decision must be disturbing. BluSky, a national restoration company, paid tens of millions of dollars to acquire a Tennessee-based restoration business that Robbins and Popwell had co-founded. As part of the transaction, Robbins and Popwell agreed to non-competition, non-solicitation, and confidentiality restrictions in the purchase agreement, in employment agreements, and in equity incentive agreements. Following the acquisition, Robins and Popwell continued to work for BluSky, and the acquired company continued to operate primarily in the same regional market in Tennessee.
A little less than five years after the sale, Robbins and Popwell left BluSky and started a competitive company in the same regional market in Tennessee. BluSky sued, alleging breach of the restrictive covenants and seeking injunctive relief. Robbins and Popwell moved to dismiss, arguing that the covenants—which had a five-year, worldwide geographic scope—were overly broad and failed to protect any legitimate business interest, and, therefore, were unenforceable. BluSky argued that the covenants were reasonable in scope, and that any overbreadth could be addressed through blue penciling.
The Chancery Court framed the “squabble” as “a classic one,” with one side seeking to uphold restrictive covenants and the other arguing overbreadth. In the end, the Court denied the request for injunctive relief and granted the motion to dismiss, finding that each of the restrictive covenants failed Delaware’s reasonableness standard. While sale‑of‑business covenants are typically subject to a more lenient standard of review, the restrictions must protect the goodwill of the acquired business only. Here, the Court found that a worldwide non-competition restriction exceeded the footprint of the competitive space that BluSky purchased, which was a regional market in Tennessee. Because the non-competition covenant was not tied to a legitimate business interest, it was unenforceable.
With respect to the non‑solicitation restrictions, the Chancery Court found that they lacked geographic limits and extended beyond the scope of the acquired business and the scope of Robbins’s and Popwell’s roles with BluSky. Thus, the non-solicitation restrictions were not tied to the acquisition because the acquired business was a specific regional business, as opposed to BluSky’s national business and other affiliated businesses. Additionally, the Court found the confidentiality restrictions unenforceable because they lacked a meaningful time limit and defined proprietary information so broadly that they encompassed information belonging to BluSky affiliates and other third parties. Finally, the Court—although noting it had authority to do so—declined to blue pencil the covenants, finding the defects too extensive to be curable.
The tendency of buyers to draft broad non-competition restrictions for the sellers of companies was under attack in Fortiline, as well. Fortiline, Inc. and its parent sued Fortiline’s founder, Hayne McCall, who left to start a competing business and hired away roughly half of Fortiline’s workforce. McCall and several departed employees were bound by one-year, nationwide restrictive covenants that prohibited them from competing with any business operated by the parent company, including units unrelated to Fortiline’s operations. The restrictive covenants also barred solicitation of customers, suppliers, and employees across the entire corporate family. The Plaintiffs sought injunctive relief.
The Chancery Court denied the application for a preliminary injunction, finding the restrictive covenants unreasonable because they were overly broad and, therefore, unenforceable. The Plaintiffs failed to demonstrate a legitimate protectable business interest in preventing the Defendants from competing with the other entities under the parent company’s umbrella, particularly those that operated in a different geography and business than Fortiline.
Following that ruling, the Plaintiffs amended their Complaint to seek monetary damages only—without a request for injunctive relief. The Defendants moved for summary judgment based on the Court’s prior finding that the restrictions were unreasonable. Plaintiffs argued that, with a claim seeking damages only, a reasonableness review should not apply—analogizing their claim to Delaware’s treatment of forfeiture for competition clauses. The Chancery Court noted that Plaintiffs’ argument is “new to this case and, as far as I can tell, to Delaware jurisprudence.” Fortiline, Inc., 341 A.3d at 1031
The Chancery Court rejected Plaintiffs’ attempt to avoid reasonableness review. The Court explained that the applicability of the reasonableness standard depends on what the covenant restricts, not the remedy that the employer requests. By their nature, restrictive covenants can restrict an employee’s ability to earn a livelihood and thus remain subject to close judicial scrutiny, regardless of the form of relief sought. The Court distinguished forfeiture for competition clauses, which allow an employee to compete but require forfeiting a financial benefit. Here, the covenants prohibited competition outright, triggering the traditional reasonableness analysis.
The Court declined to blue pencil the agreements, despite a contractual reformation clause. Because the Court had already held the covenants unreasonable and unenforceable, the Court granted summary judgment for the Defendants and found that the Plaintiffs could not recover damages. The Delaware Supreme Court affirmed the decision for the reasons stated in the Chancery Court’s Memorandum Opinion.
Together, these decisions reinforce that Delaware courts will strictly scrutinize the reasonableness of restrictive covenant agreements, even in the sale-of-business context, and even when an employer seeks only monetary relief. Given the continued attention by the Delaware courts, employers should proactively evaluate their restrictive covenants to ensure the restrictions are narrowly tailored from the outset and meet Delaware’s reasonableness expectations. It is becoming increasingly clear that Delaware courts are disinclined to fix or narrow an aggressive covenant after the fact, even if the contract invites them to do so.
In the sale-of-business context, purchasers may wish to consider using forfeiture for competition structures, such as deferred purchase price or clawback mechanisms, which Delaware courts evaluate under a different and more flexible framework. Certainly, sellers need to resist the urge to draft exceptionally broad restrictions.
The author of this article, Andrew M. DeLucia, is a member of the Bars of New Jersey and Pennsylvania. This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in New Jersey, Pennsylvania, 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.
