Delaware Supreme Court Considers Forfeiture-for-Competition Agreements

As readers of this blog may recall, there have been five relatively recent Delaware cases refusing to enforce noncompetes and other restrictive covenants in various contexts, raising doubts about whether Delaware will remain the forum of choice for enforcing noncompetes, restrictive covenants, and even business contracts overall.

We may soon have an answer – or at least a partial answer.

Today (November 1, 2023), the Delaware Supreme Court heard oral argument in Ainslie v. Cantor Fitzgerald, L.P., a case concerning the enforceability of a noncompete and forfeiture-for-competition provision1 in a limited partnership agreement. See Ainslie v. Cantor Fitzgerald, L.P., 2023 WL 106924 (Del. Ch. Jan. 4, 2023) (refusing to enforce or reform a noncompete and a forfeiture-for-competition provision).

The appeal focused on the forfeiture-for-competition covenant. The main question was whether or not such agreements are subject to the reasonableness standard applicable to restrictive covenants.

The court can rule either way. It bears noting in this regard that different states have reached different conclusions on this issue. For example, in Massachusetts, such provisions are evaluated under the reasonableness standard applicable to restrictive covenants. See Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 311–12 (1982). In contrast, in New York, the Court of Appeals has held the opposite. See Morris v Schroder Capital Mgt. Intl., 7 N.Y.3d 616 (2006) (explaining that because of the “employee choice” doctrine, the reasonableness requirement does not apply when “receipt of postemployment benefits [is conditioned] upon compliance with a restrictive covenant”).

Now we wait to see how the Delaware Supreme Court will rule.

We’ll keep you posted.

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[1] A forfeiture-for-competition provision is a contractual agreement that does not prohibit competitive actives, but instead requires the forfeiture of certain deferred compensation, such as severance pay, stock options, or unvested stock, as a consequence of engaging in competitive activities.


Thank you Steve Kayman for the heads that the oral argument had been scheduled for today.