Delaware Supreme Court Revives Nationwide Noncompete Case Following Dismissal

The decision reaffirms: (1) nationwide, 18-month noncompetes may be enforceable when they are sufficiently tied to an employer’s articulated economic interests, (2) contingent equity awards are legally sufficient consideration for restrictive covenants, and (3) a plaintiff may plead circumstantial allegations to support claims for breach of non-solicitation and confidentiality provisions.

Background

Norman entered into an incentive equity agreement that included noncompete, non-solicitation, and confidentiality provisions. In exchange, she received “Profit Interest Units” (PIUs) in Payscale’s parent holding company. At the time, the PIUs were valued at $0, but the PIUs would vest and potentially gain value upon a change of control. 

In February 2023, Norman was promoted to Senior Director of Sales, where she oversaw Payscale’s sales in the western United States. Although her role focused on the western portion of the country, Norman’s work was not confined to that region — she collaborated with directors of other regions and was involved in senior-level strategic decisions that applied across the company’s various sales regions. As a high-ranking executive, Norman was privy to Payscale’s confidential information, including customer-pricing models and financial reports, and was actively involved in company-wide operations across the United States. 

The noncompete provision prohibited Norman from engaging in “Competitive Activity” anywhere in the United States for 18 months following her departure from Payscale. Competitive Activity was defined as any business conducted by the holding company parent or any of its subsidiaries, or any business proposed to be conducted by the holding company parent or its subsidiaries. 

In December 2023, Norman voluntarily resigned and accepted a position at a consulting firm. About 10 months later, Payscale discovered that Norman had left the consulting firm and joined BetterComp, Inc., a direct competitor. Payscale sued Norman and BetterComp, asserting claims for, inter alia, breach of contract for violating the restrictive covenants and moved for a temporary restraining order, which was denied. The court did, however, permit expedited discovery. 

The Court of Chancery granted Norman’s and BetterComp’s motion to dismiss, holding that the noncompete was overbroad and unenforceable, that the PIUs Norman received constituted inadequate consideration as a matter of law, and that the allegations in support of the non-solicit and confidentiality claims were too conclusory to state a claim. The court declined to modify — or “blue pencil” — the noncompete because the parties did not enter the underlying agreement in the context of the sale of a business, and because Payscale failed to allege that it and Norman had equal bargaining power or that the restrictive covenants were negotiated. 

Case Information

Payscale Inc. v. Norman, – A.3d –, No. 297, 2026 WL 774876 (Del. Mar. 19, 2026)

Plaintiff: Payscale Inc.

Defendants: Erin Norman; BetterComp, Inc.

Judge: Hon. LeGrow, Justice (joined by Seitz, C.J., and Traynor, J.)

Analysis and Outcome

Noncompete’s Geographic Scope and Duration Was Facially Reasonable

On appeal, as to Payscale’s nationwide noncompete, the Supreme Court held that the Court of Chancery failed to credit Payscale’s allegations justifying its interest in enforcing the noncompete. To justify the scope, Payscale alleged that Norman was one of its most senior sales leaders, collaborated with directors across regions, participated in company-wide strategic decisions, and was privy to confidential information. Moreover, Payscale alleged that it operates nationwide and has a national customer base. All these factors, according to Payscale, justified the nationwide scope of the noncompete. 

As to the duration, Payscale alleged that it has relationships with “Enterprise” customers. Such customers are high value and maintain long-term relationships with Payscale, have high renewal rates, and do not move to a new vendor frequently. According to Payscale, Enterprise customers stay with the company for about three years. Given the typical lifespan of an Enterprise relationship, Payscale alleged it was justified in enforcing an 18-month noncompete. 

Crediting Payscale’s allegations, the Supreme Court held that it was “reasonably conceivable” that the noncompete was enforceable as applied to Norman. Payscale sufficiently alleged that it had a strong economic interest in its customer base and that the noncompete was necessary to protect that interest. The Supreme Court noted, however, that evidence following discovery may undermine Payscale’s claim. But, at the motion to dismiss stage, the noncompete’s scope was not facially unreasonable based on Payscale’s allegations. 

Moreover, the Supreme Court rejected the Court of Chancery’s construction of the noncompete as having a worldwide effect given that the noncompete’s definition of “Competitive Activity” was expressly limited to “anywhere in the United States.” 

Contingent Equity Constituted Legally Valid Consideration

The Supreme Court concluded that the Court of Chancery erred when it concluded that the restrictive covenants lacked consideration because the PIUs had “vanishingly small” value. Indeed, the Supreme Court found that the lower court improperly conflated the legal requirement for consideration in exchange for contract formation with the equitable balancing test used to assess reasonableness of a restrictive covenant. As for the former, the PIUs’ contingent consideration was sufficient to support a restrictive covenant. As to the latter, the balancing of equities between the value of the PIUs and the burden of the restrictive covenants would need to be done on a developed factual record. On their own, the pleadings did not support a determination that the value of the PIUs was insufficient, particularly given the parties disputed their value. 

Circumstantial Allegations Can Support Breach of Non-Solicit and Confidentiality Claims

The Supreme Court disagreed with the Court of Chancery’s characterization of Payscale’s non-solicitation and confidentiality allegations as conclusory. Payscale alleged that BetterComp recruited Payscale employees to gain access to confidential information, that approximately one-third of BetterComp’s employees were former Payscale employees, and that Payscale lost at least five Enterprise customers to BetterComp shortly after Norman’s hiring. The Supreme Court found these to be “particularized factual statements” supporting Payscale’s breach of contract claims and noted that, without discovery, Payscale could not be expected to plead more specific facts about its competitor’s practices.

Why It Matters

The Delaware Supreme Court’s decision is significant because it declined to adopt a bright-line rule deeming nationwide noncompetes facially unenforceable in the context of an employment relationship. Employers with nationwide operations may be able to justify such a scope and survive a motion to dismiss by alleging particular facts demonstrating that such a restriction is necessary to protect a strong economic interest. 

The decision is an important reminder for employers to draft their noncompetes so that they are no broader than necessary to protect their economic interests. When drafting a noncompete, employers should consider the scope of the employer’s business, the responsibilities of the employee, whether the employee has access to confidential and proprietary information, and whether the employee has built relationships with the employer’s clients. Noncompetes that are broader than what is necessary to protect the employer’s defined interests risk being found unenforceable.

The Supreme Court’s decision also highlights that contingent equity awards constitute valid consideration. In this case, although the PIUs had an initial $0 value, they constituted valued consideration for restrictive covenants. Whether the contingent equity interest constitutes fair consideration in a balancing of the equities is a question for a later stage of litigation, not on a motion to dismiss. 

Finally, the Supreme Court reaffirms that employers need not plead direct evidence of non-solicit and confidentiality violations to survive a motion to dismiss. Circumstantial evidence, such as customer and employee losses, is sufficient.