April 16, 2014
Edward M. McNally
Delaware Business Court Insider

Delaware continues to expand its enforcement of agreements not to compete with one's former employer. The latest step in this path to enforcement is the recognition that a noncompete and nonsolicitation agreement may be entered into by a mere click of the "accept" button on a computer screen. The Delaware Court of Chancery just upheld such agreements in Newell Rubbermaid v. Storm, Del. Ch. C.A. 9398-VCN (March 27, 2014). The decision has serious implications for employees who may wish to quit their present jobs to pursue careers at an employer's competitor.

The facts of Newell Rubbermaid illustrate the scope of its holding. Newell Rubbermaid gave some of its more valued employees bonuses in the form of restricted stock units, or RSUs, essentially a stock option. To be eligible for an RSU, Sandy Storm had to agree to the RSU agreement by going to a website and clicking on the "accept" button. The RSU agreement contained the nondisclosure and nonsolicitation terms that Newell Rubbermaid sought to enforce against Storm when she quit to join a competing business.

Storm claimed she never actually read the detailed RSU agreements available to her on the company's website. She also argued that because she lost her RSUs when she quit, there was no consideration for the nondisclosure, nonsolicitation agreements. Significantly, the "accept" button Storm clicked also plainly stated that by clicking it, she was confirming she had read the RSU agreements that were available on the website.

The Court of Chancery's rejection of Storm's arguments only reflects Delaware's favorable treatment of contract enforcement rules. Delaware will not hold a contract is unconscionable when it is signed by a party with a meaningful choice about whether to do so and when the agreement has terms common in similar contracts. Hence, Storm's claim she should not be held to the agreements she failed to read had little traction when she could have declined the RSUs. Similarly, the court rejected Storm's lack-of-consideration argument because Delaware only requires there be some consideration to uphold a contract, not that the consideration be fair. Continued employment is consideration in Delaware. Thus, on Storm's defenses, Newell Rubbermaid merely applied settled Delaware law.

Newell Rubbermaid's significance then lies not with how it applied existing law, but instead with how it sanctioned the way the employer obtained the legal rights it sought to enforce. Employers often are reluctant to require employees to sign complicated employment agreements with nondisclosure, nonsolicitation and other restrictive provisions. The paperwork is tedious. There is sometimes a sense such long agreements make joining the company's employment less attractive to job candidates. The bother of it all seems unnecessary, particularly for lower-level employees. When, as was the case with Storm, those employees rise to higher levels, the need to restrict their ability to compete is simply overlooked.

Newell Rubbermaid found a better way to limit employees' post-employment competition. By using a website to have employees accept restrictive covenants, Newell Rubbermaid virtually eliminated cumbersome paperwork and made the whole process of obtaining employees' consent much less onerous. After all, every day we accept the terms of websites without much thought. We want fast results from our Internet access and reading detailed terms and conditions seems just too much trouble. Is this the way all employees will be employed in the future when they accept the benefits they think they have been promised only to find they accepted a lot more than just those benefits?

It would be wrong to read Newell Rubbermaid too broadly. To begin with, Storm was a high-ranking employee, the face of Newell Rubbermaid with a very large customer. She quit to work for a competitor to solicit that same customer. The agreements she accepted stated Newell Rubbermaid would "suffer substantial damages for which there is no adequate remedy at law" if they were violated. These bad facts for Storm will not be present when every employee quits, even if it is to join a competitor. Thus, the current legal limitations on enforcement of restrictive covenants will continue to apply.

What does strike me as new about the Newell Rubbermaid decision is the technology involved. To most of us, there is something uneasy about the way e-commerce secures our consent to the terms and conditions of the goods we buy over the Internet. Whether it is a "browsewrap," a "clickwrap," a "shrinkwrap" or similar agreement device to obtain consent of the buyer, we feel that we are being required to go beyond the simpler terms that govern our purchases in a simpler time. There must be a limit on what is proper to require of unsuspecting consumers, at least.

Yet we need to recognize that we cannot let easy-living technology become our excuse for willful ignorance. Had Storm not been given a website to accept her RSU, she would have instead been required to sign a detailed written agreement typical of stock option plans and containing restrictive employment terms. We would not be surprised if she were held to that agreement's terms, even if she failed to read it. Why, then, should the result be any different just because the agreement was on a website? As Newell Rubbermaid points out, it has long been our law that a "contractor must stand by the words of his contract; and if he will not read what he signs, he alone is responsible for his omission," citing to Upton Assignee v. Tabilcock, 91 U.S. 45, 50 (1875). That continues to be our law in the age of technology.