Delaware courts made one thing clear: they won’t rewrite overbroad restrictive covenants to make them enforceable. Instead, they’ll strike them entirely. This trend was solidified in the Delaware Supreme Court’s decision in Sunder Energy, LLC v. Tyler Jackson, et al.
In Sunder Energy, the plaintiff, a solar sales dealer, tried to enforce a noncompete against its co-founder, Tyler Jackson, after he left to join a competitor, Solar Pros. The noncompete was sweeping: it barred Jackson and his “affiliates” from engaging in any door-to-door sales where Sunder operated or reasonably expected to operate. The Delaware Court of Chancery found the restriction far too broad. As the court memorably noted, under the covenant’s language, Jackson’s daughter couldn’t sell Girl Scout cookies door-to-door.
The noncompete’s duration was also problematic. It ran for two years after Jackson no longer held “incentive units,” but Jackson couldn’t sell those units—only Sunder could buy them back. That meant Sunder controlled when the restriction ended, potentially binding Jackson indefinitely. Adding to the issue, Jackson, a minority member, lacked the rights of a true owner, like voting or access to information, leaving him in a position more akin to an employee.
Sunder argued that the court should “blue pencil” (narrow) the noncompete, since Jackson’s actions would have breached even a more reasonable restriction. The Chancery Court refused, denying Sunder’s request for a preliminary injunction. On appeal, the Delaware Supreme Court affirmed that decision.
Key Takeaways:
1️⃣ Overbroad covenants won’t be saved by bad behavior.
Sunder’s argument—that Jackson’s conduct justified enforcing some version of the noncompete—was dismissed. The Court stressed that blue-penciling “should not turn on the egregiousness of the employee’s conduct,” but on the fairness and reasonableness of the covenants as written.
2️⃣ Crafting a “new” covenant isn’t the Court’s job.
The Court refused to create an entirely different noncompete, stating that doing so would undermine Delaware’s strong respect for freedom of contract.
3️⃣ Equality of bargaining power matters.
Delaware courts have, in limited cases, modified restrictive covenants where the parties negotiated the terms, exchanged meaningful consideration, and had relatively equal bargaining power—such as in the sale of a business. That wasn’t the case here.
Why Jackson Won
The Court’s decision relied heavily on the facts surrounding the covenant’s adoption:
⚫️ Jackson had no role in negotiating the restrictive covenants. While Sunder’s attorneys explained the terms to majority members, Jackson wasn’t present—or even invited.
⚫️ The operating agreement was sent to Jackson and the other minority members for electronic signature on New Year’s Eve, with encouragement to sign it “before midnight.” Jackson signed less than an hour later.
⚫️ Jackson received almost no meaningful compensation for the restrictions. He was given incentive units he couldn’t transfer, which Sunder later repurchased for $0 after labeling him a “bad leaver.”
Practical Lessons for Employers
Delaware employers (and there a lot of them since many companies are based in Delaware and have Delaware choice of law clauses) should understand that if they draft an overbroad covenant, Delaware courts may throw the whole thing out.
What are your thoughts? Did the Delaware court get it right?