Delaware Chancery Court Strikes Down Employee Restrictive Covenants in a Partnership Agreement

Restrictive provisions in employment contracts have been getting a lot of attention of late. For example, in January 2023, the Federal Trade Commission (FTC) released a proposed rule that would severely restrict the use of non‑compete clauses. The same month, the Delaware Chancery Court issued its decision in Ainslie v. Cantor Fitzgerald, L.P. (Ainslie). That decision is a cautionary tale for employers that might believe Delaware’s general pro-business slant makes it a friendly environment for the enforcement of non-competes and other restrictive covenants – including those imposed on employees via partnership agreements. In Ainslie, the court held that non‑competition and non‑solicitation restrictions, as well as a four-year forfeiture-for-competition provision, contained in a partnership agreement were unenforceable due to their unreasonable scope and duration. This guest article by Friedman Kaplan attorneys Lance J. Gotko, Asaf Reindel and Yaara Shchori Ben-Harush discusses the key holdings in Ainslie, as well as practical considerations for fund managers. For more on the FTC’s proposed rule, see “What Fund Managers Should Know About the FTC’s Proposed Ban on Non‑Compete Provisions” (Feb. 16, 2023).

To read the full article

Continue reading your article with a HFLR subscription.