Hough Associates Inc. v. Hall , (Del. Ch. Jan. 17, 2007), read opinion here. This Chancery Court decision reaffirmed the enforceability of covenants-not-to-compete. The court also clarified the willingness of Delaware courts to hold responsible the new employer of an employee bound by a covenant-not-to-compete when that new employer tortiously interferes with the contractual rights of the former employer who seeks to enforce a covenant-not-to-compete.
The court enforced the agreement which was for three years and within a 50-mile radius. Hough successfully established that its former employee, Hall, breached the Non-Competition Agreement by accepting a nearly identical position with a new employer for work at a DuPont facility that was nearly identical to the work that was being performed while employed by Hough. The employee was also found to be breaching the agreement by soliciting other employees from Hough to work for the new employer. Hough also successfully alleged that the new employer tortiously interfered with the contractual relationship between Hough and Hall set forth in the Non-Competition Agreement by hiring Hall and by conspiring with him to deprive Hough of the ability to profit from Hall’s experience.
Procedurally, the court’s ruling was on a motion for preliminary injunction. The expedited discovery was completed six weeks after the complaint was filed and oral argument on the motion was held two weeks thereafter.
Initially, the court determined that an arbitration clause in a contemporaneous Stock Purchase Agreement, did not apply to the separate and independent Non-Competition Agreement which did not have a similar arbitration clause.
The court addressed basic contract enforceability principles in general and in particular as they relate to covenants-not-to-compete. (See pages 33 and 34.) The court also noted at footnote 74 that in Delaware, continued employment is satisfactory consideration for an at will employee’s agreement to a restrictive covenant.
The court also noted at footnotes 93 and 94 that the inability to calculate damages with precision is one method to establish irreparable harm and that a contractual stipulation of irreparable harm is sufficient to demonstrate irreparable harm.
This 50-page decision has much more to commend to it, and anyone with a case involving a covenant-not-to-compete would be well served by a careful reading of this opinion that provides an updated recitation of Delaware law on the enforceability of restrictive covenants against both the ex-employee and the new employer.