Gibson Dunn Discusses Delaware Supreme Court’s Revival of Nationwide Noncompete

Key Takeaways

• 18‑month nationwide noncompete may survive pleading if tied to business realities
• Contingent equity awards like PIUs count as valid consideration
• Circumstantial client loss evidence can satisfy pleading requirements
• Early‑stage motions judged by pleading standards, not ultimate enforceability
• Decision may shape Delaware courts' handling of noncompete dismissals

Pulse Analysis

Delaware courts have long been the bellwether for enforceability of employee noncompetes, and the recent Payscale Inc. v. Norman decision marks a pivotal shift. The Supreme Court rebuked the Chancery Court’s overly aggressive dismissal approach, emphasizing that plaintiffs need only present plausible, well‑pleaded facts linking the covenant’s geographic reach and duration to protectable business interests. By anchoring the 18‑month nationwide restriction to the typical three‑year enterprise contracts, Payscale satisfied the pleading threshold, signaling that courts will tolerate broader covenants when tied to concrete commercial realities.

Equity‑based consideration, particularly profit‑interest units (PIUs) that may have zero value at grant, also received validation. The court distinguished the legal requirement of consideration from the equitable balancing test used to gauge reasonableness. This nuance is critical for startups and high‑growth firms that frequently compensate executives with contingent equity. Even if the equity’s present value is negligible, its potential future upside can support a restrictive covenant, provided the agreement is clearly documented. Companies can now structure incentive plans with greater confidence that such arrangements will not be dismissed at the pleading stage.

Practically, the ruling reshapes litigation strategy for both employers and employees. Plaintiffs must focus on detailed factual allegations—such as access to confidential pricing models and imminent loss of high‑value clients—to survive motions to dismiss. Defendants, meanwhile, will need to challenge the sufficiency of those allegations rather than rely on abstract notions of unreasonableness. The decision also revives related claims, including nonsolicit and tortious interference, expanding the scope of recoverable relief. As Delaware courts apply this precedent, employers nationwide should revisit noncompete language, ensure robust pleading support, and anticipate a more rigorous but predictable early‑stage motion practice.