When someone buys a business, the new owners typically want the prior owners not to compete.  Those types of non-compete agreements have typically been enforceable if the business owner selling had at least 15% ownership in the company.  But, for the second time this year, a Delaware court[1] dismissed a suit by Intertek against seller Jeff Eastman[2] seeking to enforce a business-sale noncompete agreement on the grounds that it was too broad.  The business seller owned the whole business and sold out.  Then he joined a company founded by his son that did the same thing.  The buyer of the father’s business was not happy and sued, seeking an injunction.  And, the buyer may have won, but because the geographic scope of the non-compete was so broad, the court struck the entire non-compete agreement, stating that it declined to blueline the scope of the non-compete…the parties were sophisticated in business, and it would have been inequitable for the court to renegotiate or re-write the agreement for them.

The problem was the non-compete geographic area, according to the judge, “far exceeds any legitimate economic interests that Intertek might have in protecting the assets and goodwill that it acquired.”

Earlier this year, another Delaware court in the case of Kodiak Building Partners v Philip Adams[3] denied injunctive relief when the private equity firm that purchased a construction company tried to stop a former manager from working at a competitor’s business.  That court found that while the manager violated the time period and geographic area restrictions in his non-compete agreement, the agreement was unreasonable because it included restrictions that extended to other companies the private equity firm owned that did not compete with the former manager’s company.  The Court stated: “Prohibiting [Philip Adams] from engaging in ‘any activity or business which is similar to’ or competes with ‘the Business’ is unreasonable because the noncompetition provision is broader than necessary to protect the goodwill [that the private equity firm] purchased from [the former manager’s company].”  That judge also declined to blue-pencil the agreement in order to enforce the non-compete.

Here’s the issue:  noncompete language in employment agreements, severance agreements and business purchase agreements has become boilerplate.  But that does not mean a judge will enforce it.  So, make it reasonable.

Things change.  Here at Epps & Coulson, LLP, our employment attorneys keep on top of matters for you.  We are ready to help you plan and grow.  Please feel free to contact Dawn at: for any questions.

Attorneys admitted to prrctice in California, New York, Colorado, Texas, and Oregon

Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.  It is likely considered advertising.  Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.

[1] Courts across the country often look to Delaware for business decisions and trends.  We all follow what happens there as it is typically at the forefront of a wave of new decisions.