Delaware Supreme Court holds consideration for restrictive covenant is measured at formation

On February 3, 2026, the Delaware Supreme Court held that a restrictive covenant (e.g., a non-compete) may be enforceable if there is sufficient consideration at the time of contract formation, not whether that consideration still exists at the time a company seeks to enforce the covenant. Specifically, the Supreme Court reversed an earlier decision from the Court of Chancery which granted a former employee's motion to dismiss where the at-issue agreement containing the restrictive covenant provided that incentive units were the sole consideration for the restrictive covenants and that agreement lacked consideration and the covenants were unenforceable because the company determined the units were forfeited.  

This ruling confirms that companies may continue to rely on equity awards as consideration for restrictive covenants, notwithstanding when, for example, those awards are later subject to forfeiture if there is an event triggering forfeiture like a termination of the employee. Nonetheless, restrictive covenants continue to be closely scrutinized by the Delaware courts, including on reasonableness and scope grounds. As such, companies should consult with counsel to review their agreements containing or providing consideration for restrictive covenants.