Over the last few years, and just last week, Delaware courts have refused to enforce, or to revise or “blue pencil” to make enforceable, a number of restrictive covenants, even in the traditionally favored sale‑of‑business context, when the covenants appear to exceed the protectable interest of the business with respect to the particular seller or senior executive that agreed to the restrictive covenants. Against that backdrop, the Court of Chancery’s December 8, 2025, ruling in Derge v. D&H United Fueling Solutions Inc. stands out: the court enforced a five‑year, multinational non‑compete against a target C-suite executive who held only a 0.73% stake and received roughly $965,000 at closing.

The Recent Delaware Trend of Finding Sale-Related Non-Competes Overbroad

Last week, the Supreme Court of Delaware affirmed a chancery court decision barring Fortiline, Inc. (Fortiline) and its parent company Patriot Supply Holdings, Inc. (PSH) from enforcing a non-compete against Hayne McCall, the founder of Fortiline who left, started a competing business and allegedly took half of Fortiline’s workforce with him. (Fortiline, Inc., et al. v. McCall, et al.,  No. 300, 2025, 2026 WL 369934, at *1 (Del. Feb. 10, 2026), aff’g, 341 A.3d 1027 (Del. Ch. 2025)). McCall was subject to restrictive covenants in award agreements for stock options in PSH. The award agreements contained a one-year nationwide non-compete prohibiting McCall from engaging in any business conducted by any entity under PSH’s umbrella, even those in business sectors and geographic locations completely different than that of Fortiline. McCall was also prohibited from soliciting customers, suppliers, officers, employees, and agents of PSH or any affiliate. The Chancery Court denied a preliminary injunction motion, finding that the restrictive covenants were unreasonable and unenforceable, as Fortiline and PSH had not shown a legitimate protectable interest that would justify prohibiting the defendants from competing with Fortiline and any of the other entities under the PSH umbrella, especially as it pertained to those entities that operated in completely difference business sectors and geographic locations. The court rejected Fortiline and PSH’s argument that if a company is only seeking damages, rather than injunctive relief, a restrictive covenant should not be subject to a reasonableness review. Fortiline and PSH attempted to rely on the previous Delaware Supreme Court decisions, Cantor Fitzgerald L.P. v. Ainslie and LKQ Corp. v. Rutledge, which held that forfeiture-for-competition provisions are not subject to reasonableness review. The chancery court drew a critical distinction: whether a reasonableness review is required depends on “what the provision demands of the employee, not what the company seeks as a remedy for its breach.” Restrictive covenants prohibit competition and can deprive employees of their livelihood, giving rise to strong policy interests justifying the reasonableness review. In contrast, forfeiture-for-competition provisions do not prohibit competition; they allow the employer to retain a benefit if the employee chooses to compete. The court also declined to revise or “blue pencil” the restrictive covenants. (“The availability of blue-penciling supports a regime of ‘sprawling restrictive covenants’ in a ‘no-lose situation for employers’…. When the policy against unreasonable restraint on trade calls a court to strike a covenant and decline to blue pencil it, the court is unhindered by a provision in that same uneven agreement that purports to promote blue penciling.”)

In Intertek Testing Services v. Eastman,  the Delaware Court of Chancery deemed void and refused to blue pencil a five-year worldwide non-compete binding a co-founder of an acquired Texas-based training company despite a $10 million payment for his ownership interests. (No. 2022-0853-LWW, 2023 WL 2544236, at *4–5 (Del.Ch. Mar. 16, 2023)). The court found the complaint did not allege that the purchased company provided services globally but rather that it only provided services on a nationwide basis, thereby rendering the non-compete overbroad and unenforceable. Similarly, in Kodiak Building Partners, LLC v. Adams, the court deemed void a 30-month non-compete prohibiting a senior executive’s competition in two states and within a 100-mile radius of any of the buyer’s subsidiaries or affiliates after having paid the executive roughly $900,000 in exchange for his interests when acquiring a roof trusses company. (No. 2022-0311-MTZ, 2022 WL 5240507, at *10–13 (Del. Ch. Oct. 6, 2022)). In so finding, the court explained that “Delaware law has not affirmatively recognized a legitimate business interest in protecting all the acquirer’s preexisting goodwill that predated the acquirer’s purchase of the target.” As a result, it was unreasonable for the buyer to try and shield its affiliates and subsidiaries that operated in niches outside of roof trusses, such as those that only engaged in lumber distribution. The court also declined to blue-pencil the agreement, explaining in a footnote that “blue-penciling restrictive covenants . . . create[s] a ‘no-lose’ situation for employers.”

In Weil Holdings II, LLC v. Jeffery Alexander, DPM, a plaintiff holding company sought to enforce a non-compete against a former employee podiatrist who signed the covenant as part of an LLC agreement when the podiatrist purchased membership interest in the company. (No. 2024-0388-BWD, 2025 WL 689191, at *1–2 (Del. Ch. Mar. 4, 2025)).The non-compete covered the 25-mile radius from where the podiatrist worked, but also a 15-mile radius from any of the plaintiff holding company’s affiliates across four states. Thus, the true geographic scope was subject to indefinite change based on the opening, expanding, and closing of affiliates. As a result, the court found the geographic scope of the agreement to be unreasonable. Further, the non-compete’s duration was defined as the period of time in which investors in the company held units in the company and two years thereafter and it did not include a mandatory membership redemption right. Thus, the court found that temporal scope was unreasonable because it could theoretically be of infinite duration subject to the company’s discretion in whether or not it chose to redeem the podiatrist’s membership interest of about 7.7%. The court found that blue-penciling the agreement would require the court to essentially draft an entirely new agreement and refused to do so.

The Derge Decision Upholding a Sale-Related Non-Compete

Applying a sale-standard to a top executive’s non-compete agreement despite his assertions that an employment agreement-standard should apply, the court found in William Brian Derge v. D&H United Fueling Solutions, Inc., et al. that the agreement was enforceable. In2023, Tanknology Inc., a provider of tank testing and environmental compliance services, was sold to a private equity‑backed buyer. William Derge – Tanknology’s chief operating officer (COO) for the prior nine years who oversaw U.S. and international operations, vendor relationships, and pricing – was required, as a closing condition, to sign restrictive covenant agreements along with other executives. In exchange for sale of his stock, Derge received $1 million in consideration. Derge’s agreement barred him, for five years, from working with a business competitive with Tanknology in the United States or any other country where Tanknology generated revenue in the two years before closing. The chancery court concluded that that the executive consented to the merger, had equal bargaining power, and received substantial consideration in exchange for a reasonable non-compete.

The court found the five‑year duration to be reasonable in the sale‑of‑business context and concluded the geographic scope was appropriately calibrated to Tanknology’s actual footprint during the lookback period, aligning with the COO’s responsibilities. The court recognized a legitimate interest in protecting the acquired company’s goodwill from an executive with deep operational and pricing knowledge. The opinion also emphasizes the sale nexus: delivery of the covenant was a condition to close and the executive received substantial consideration for his shares and for delivering the covenant. The court rejected arguments that his sub‑1% ownership rendered him an employee with insufficient bargaining power, noting he executed a written consent approving the merger which he could have declined to sign.

Practical Considerations

The Derge decisionemphasizes the importance of limiting the scope of the restrictive covenants in every circumstance, including transactions.   

Given the implications of the Derge decision, employers should evaluate the following considerations:

• Limit restrictive covenants to the employee’s/seller’s specific business and geographic scope regarding customers, markets, or access to confidential information.
• Avoid broad, company‑wide restrictions that exceed the individual’s practical reach, as well as forward‑looking or hypothetical business lines the target may enter later.
• When applicable, connect the restrictive covenants explicitly to a transaction.
• Define the “restricted business” with precision and base the definition on the target company’s operations as they exist at closing.
• Use objective data (often a revenue‑based lookback) to identify the markets where the business actually operated.
• Do not include regions where the target had no meaningful presence or customer activity.
• Use time periods that align with typical transaction‑based norms in your jurisdiction.

If you have any questions on how these decisions may impact your business, please contact the authors.