Payscale, Inc. v. Norman, No. 297, 2025 (Del. Mar. 19, 2026)
By: Albert Manwaring, Aubrey Morin, and Tyler O'Connell
The Court of Chancery’s docket includes a significant number of employment restrictive covenant actions. Here, the Court of Chancery dismissed claims for breach of restrictive covenants due to their unreasonable scope and duration, and also due to a lack of sufficient consideration. The Supreme Court reversed, finding that the complaint adequately stated a claim of breach.
When examining non-compete and non-solicitation provisions, Delaware courts assess whether they are: (i) reasonable in temporal duration and geographic scope, (ii) advance legitimate economic interests of the party seeking enforcement, and (iii) survive a balance-of-the-equities test. Here, the restrictive covenants limited competition for 18 months and covered the entire United States. In dismissing the complaint, the Court of Chancery found that the restrictive covenants were not enforceable because their scope and duration were overbroad and went beyond protecting the employer’s legitimate economic interests. On appeal, the Supreme Court found, however, that the complaint’s allegations were sufficient to survive a motion to dismiss. The Supreme Court reasoned that the “reasonably conceivable” pleading standard was satisfied in light of (i) the scope of appellant’s nationwide operations; (ii) appellee’s senior role as the company’s Senior Executive of Sales, which was not limited to any particular region and gave her access to a broad swath of confidential information; and (iii) the importance and long-term nature of customers in the industry.
In reversing, the Supreme Court also rejected appellee’s argument that the consideration’s minimal value, which the court-below viewed as “vanishingly small”, was inadequate to support the broad scope of the restrictions. The complaint itself alleged that the incentive units had no value at the time of issuance, but that they have significant value upon certain events like a company sale. The Supreme Court observed that such consideration, even if “somewhat contingent” and of minimal value, still constitutes sufficient consideration for contract formation purposes. The Supreme Court explained that adequacy of consideration is not irrelevant. Rather, it is relevant to the balance of the equities in assessing whether and to what extent a restrictive covenant should be enforced. The Supreme Court pointed out that pleaded facts often do not lend themselves to this balancing analysis when all reasonable inferences must be drawn for the non-moving party on a motion to dismiss.
Accordingly, the Supreme Court reversed and remanded for further proceedings.
