Delaware non-compete law: blue penciling after Sunder, and forfeiture clauses

Delaware has no general statute on employee non-competes, so the courts' test applies: a covenant must be reasonable in geographic scope and duration, advance a legitimate economic interest of the party enforcing it, and survive a balancing of the equities. Two 2024 Delaware Supreme Court decisions shape how that plays out. In Sunder Energy v. Jackson, the Court confirmed that the Court of Chancery may refuse to rewrite an overbroad covenant and strike it whole; in LKQ v. Rutledge, it held that forfeiture-for-competition clauses in equity awards are not reviewed for reasonableness at all. The one statute, 6 Del. C. 2707, voids non-competes between physicians. That is the law as of October 2026.

For recruiters, Delaware matters beyond Delaware residents. A candidate in another state may hold an equity award or LLC agreement that chooses Delaware law, so the question can be what Delaware does with a clause signed somewhere else. The general screen is in non-compete questions for candidates, and agency-side clauses are in non-solicitation clauses for recruiters.

Does Delaware have a non-compete statute?

Only for physicians. Title 6, chapter 27 of the Delaware Code has two sections a recruiter should know:

• Section 2707, agreements not to compete. A covenant not to compete in an employment, partnership or corporate agreement "between and/or among physicians" that restricts a physician's right to practice "in a particular locale and/or for a defined period of time" after the agreement ends "shall be void." The rest of the agreement stays enforceable, including provisions requiring damages "reasonably related to the injury suffered," which "may include, but not be limited to, damages related to competition." It was added by 64 Del. Laws c. 175, approved July 13, 1983.
• Section 2708, choice of law. Parties to a contract may choose Delaware law, and that choice is "conclusively presumed" to be a significant, material and reasonable relationship with Delaware, if they are subject to the jurisdiction of Delaware courts or arbitration and may be served with process. The section does not apply to a contract "involving less than $100,000."

Everyone else, from a Wilmington bank analyst to a Dover sales manager, is judged under case law.

What test do Delaware courts use?

In Sunder Energy, LLC v. Jackson, decided December 10, 2024, the Delaware Supreme Court restated it: Delaware courts review non-compete and non-solicit agreements to ensure they are "(i) reasonable in geographic scope and temporal duration, (ii) advance legitimate economic interests of the party seeking enforcement, and (iii) survive a balancing of the equities."

The facts show how strictly that is applied. The Court of Chancery found that the covenants in Sunder's LLC agreement were unreasonable and overbroad "as to whom they covered, when they applied, and where they operated geographically," and that the competition restriction was "far more restrictive than any legitimate interest" the company could have. Sunder did not appeal that finding. It argued only that the court should have narrowed the covenants because the former co-founder had competed so blatantly.

Will a Delaware court blue-pencil an overbroad covenant?

It may, but it does not have to, and several recent Chancery decisions have declined. The Supreme Court held that blue penciling is a discretionary equitable power and that the Court of Chancery acted "well within the bounds of reason" in refusing it. It noted that Delaware courts have narrowed covenants "under circumstances that indicate an equality of bargaining power," such as where the terms were "specifically negotiated, valuable consideration was exchanged for the restriction, or in the context of the sale of a business." It also cited Chancery decisions that declined to rewrite covenants, including Intertek Testing Services NA v. Eastman (2023), a sale-of-business case, and Kodiak Building Partners v. Adams (2022), despite a reformation clause in the agreement.

The Court rejected the idea that bad conduct by the employee justifies rewriting: "Whether a court should blue pencil a covenant cannot turn on the egregiousness of the employee's conduct." It also left the door open: this "is not to say that Delaware courts should never blue pencil an agreement that is overbroad in some respects."

Example only: a candidate in Delaware signed a standard-form agreement at hire barring work for any competitor anywhere in the United States for two years, with nothing negotiated. On the reasoning in Sunder, a Delaware court could find it overbroad and decline to narrow it, leaving no non-compete at all. The same clause in a negotiated agreement tied to a large payment or a business sale could come out differently.

What about forfeiture clauses in equity awards?

This is the Delaware rule most likely to cost a candidate money. In LKQ Corp. v. Rutledge, decided December 18, 2024 on questions certified by the Seventh Circuit, the Delaware Supreme Court explained that in Cantor Fitzgerald, L.P. v. Ainslie (2024) it had held a forfeiture-for-competition provision "is not a restraint of trade subject to reasonableness review," endorsing the employee choice doctrine instead. In LKQ it held that Cantor Fitzgerald "is not restricted to the limited partnership context" and applies "including to RSU agreements."

In plain terms, a clause that says "if you join a competitor, you forfeit your unvested units" or "you repay what you received" is treated as an ordinary contract term, not a non-compete. It does not stop the candidate working; it makes moving expensive. The Court noted one open question: a claw back "so extreme in duration and financial hardship that it precludes employee choice by an unsophisticated party" might still be reviewed for reasonableness. For offers, this can turn into a compensation question, which the hiring company and its counsel should handle with the salary history rules below in mind.

Does a Delaware choice-of-law clause decide the case for a candidate in another state?

Not always. In Cabela's LLC v. Highby, a non-precedential opinion filed April 14, 2020, the Third Circuit held that section 2708 "only requires a court to presume" a significant relationship with Delaware and "does not, and indeed could not, require a court to presume no other forum" has a greater interest. It affirmed the refusal to apply Delaware law to Nebraska residents whose agreements were signed and allegedly breached in Nebraska.

The candidate's own state may also have its own rule. California, for one, says a void non-compete is unenforceable regardless of where it was signed; see California non-compete law. Which law governs a particular clause is a question for counsel, so record the clause and pass it on.

Delaware non-compete rules at a glance

What should a recruiter ask a candidate with a Delaware agreement?

Ask early, the same way for every candidate for the role, and record facts. For a Delaware role, the salary history ban applies while you do it, and a question about equity value is a question about compensation history; see the Delaware salary history ban guide. Ask whether an agreement has a forfeiture or repayment term, not what it is worth.

DELAWARE-LAW AGREEMENTS — restrictive covenants

1. "Have you signed a non-compete, a customer or employee non-solicit,
    or a confidentiality agreement with your current or a past employer?"
2. "Is it part of an employment agreement, an LLC or partnership
    agreement, or an equity award such as RSUs or options?"
3. "Does any agreement say you lose or repay equity or other payments
    if you join a competitor?"
4. "Did you negotiate its terms, or was it a standard form?"
5. "Was it signed as part of selling a business or an ownership stake?"
6. "Which state's law does it name, and where do disputes go?"
7. Physicians: "Is the agreement with other physicians or a physician
    practice?"
Always: "We don't want any confidential information, documents or
client lists from your current employer."

• Do not tell a candidate "Delaware won't enforce that after Sunder." The Court said blue penciling is discretionary, not banned.
• Do not treat a forfeiture clause as unenforceable because it looks like a non-compete. Under LKQ, it generally is not one.
• Do record "two-year nationwide non-compete in standard offer letter; RSU forfeiture on joining a competitor" rather than an opinion.

What is the risk to the hiring company?

Three risks run in parallel. A reasonable covenant can still be enforced by injunction. A forfeiture clause can cost the candidate unvested or already-paid equity, which can stall an offer late. And former employers sometimes sue the new employer, for example alleging interference with the contract or misuse of confidential information; how that plays out depends on what the new employer knew and did, which is for its counsel.

Lower the risk by raising the agreement before final interviews, letting counsel review it before the offer, flagging any forfeiture term to the client early so its counsel can decide how to handle it, and confirming at the offer call that the company wants no confidential information.

Is Delaware changing its non-compete law?

Not on the current record. As of October 2026, the bill list for the 153rd General Assembly (2025 to 2026) on the Delaware General Assembly's site shows no bill to restrict employee non-competes, and we found none in the 152nd either. The changes are coming from the courts. Re-check the General Assembly's site and recent Delaware Supreme Court opinions before relying on this page.

Where does the federal FTC rule stand?

It does not apply. The FTC's Noncompete Rule page says the rule "is not in effect and it is not enforceable" and notes the August 20, 2024 court order; the Commission voted on September 5, 2025 to dismiss its appeals and accept the vacatur; and a February 12, 2026 notice removed it from the Code of Federal Regulations.

Staffing agencies and their own agreements

If your agency's recruiter or consultant agreements choose Delaware law, Sunder is a drafting warning: an unnegotiated, broad non-compete may be struck whole rather than narrowed. A covenant limited to clients the person actually worked with, for a defined period, is easier to defend. Client-side no-hire terms are a separate issue; see no-poach agreements and antitrust law.

A Delaware candidate may live or work across a state line. Compare Pennsylvania, New Jersey and Maryland. For the rest of a Delaware hire, see hiring employees in Delaware, the Delaware pay transparency law that starts on September 26, 2027, and the Delaware staffing agency license guide.

A Delaware checklist

• Restrictive-agreement question asked of every candidate, in the same words.
• Type of agreement recorded: employment, LLC or partnership, or equity award.
• Forfeiture or claw back terms flagged separately from the non-compete.
• Whether terms were negotiated, and any sale of a business, captured.
• Governing-law and forum clauses recorded for counsel.
• Physician roles checked against 6 Del. C. 2707.
• Delaware roles: no questions about the value of pay or equity.
• Client told before final interviews; counsel reviews before the offer.