In Centurion Service Group, LLC v. Wilensky, the Court of Chancery dismissed an employer’s (Centurion) claim against its former employee (Wilensky) for breach of an employment agreement’s restrictive covenants, because these covenants were unreasonably overbroad (and, therefore, unenforceable). 2023-0422-MTZ (Del. Ch. Aug. 31, 2023) (letter op.). Wilensky represents the latest in a line of recent Delaware cases declining to enforce overbroad restrictive covenants (three of which are discussed in a previous post).

Before delving into the substance of the disputed restrictive covenants, Vice Chancellor Zurn began “with the prefatory issue of choice of law.” Although the employment agreement contained a Delaware choice of law provision, the existence of an applicable choice of law provision is not necessarily dispositive of the choice of law inquiry. As the Court explained:

Where a different state’s law would govern in the absence of a choice of law provision, where that state has a fundamental public policy regarding restrictive covenants, and where that state has a materially greater interest in the matter, this Court will defer to that state’s law even in the face of a Delaware choice-of -aw provision.

The Court next observed that Illinois law would have governed (absent the Delaware choice-of-law provision), because: (i) Centurion was organized under Illinois law; (ii) Centurion was headquartered in Illinois; (iii) Wilensky was an Illinois resident; and (iv) the employment agreement was executed in Illinois. However, after observing (among other things) that “Illinois common law and Delaware common law are mostly in step as to the enforceability of restrictive covenants,” the Court elected not to disturb the employment agreement’s Delaware choice-of-law provision.

Applying Delaware law, the Court held that the employment agreement’s restrictive covenants were overbroad. The relevant portion of the employment agreement prohibited Wilensky from participating “in any business engaged directly or indirectly in a Competitive Activity in the Restricted Area” during the “Restricted Time,” which included Wilensky’s seventeen-year employment and two years thereafter. When construed in accordance with the definitions supplied by the employment agreement: (i) the restricted activities included “any business activities in which [Centurion], at any time during [Wilensky’s seventeen-year employment], is engaged or is actively planning to engage in; and (ii) the geographic scope of the restrictive covenants embraced “any ‘area’ where Centurion actively planned to solicit and engage in any business activities in which it was engaged or actively planning to engage at any time” during Wilensky’s seventeen-year employment. The Court held that “[u]nder a holistic assessment, this geographic and temporal scope is not reasonable.” 

The Court also observed that the “vague and everyday concerns” identified by Centurion in order to justify the restrictive covenants (including Wilensky’s “access to Centurion’s confidential information including lists of buyers, sellers, and vendors”) were not sufficient to demonstrate that the restrictive covenants were necessary. Accordingly, because the restrictive covenants were unenforceable (and the Court “decline[d] to blue pencil” the employment agreement), Centurion’s claim for breach of the employment agreement’s restrictive covenants was dismissed.