Delaware Supreme Court Reverses the Dismissal of a Non-Compete Case

On March 19, 2026, the Delaware Supreme Court issued a significant opinion in Payscale Inc. v. Norman, reversing the Court of Chancery’s dismissal of breach of contract and tortious interference claims arising from an employer’s effort to enforce non-compete, non-solicitation, and confidentiality covenants against a former employee. The decision reinforces the low pleading threshold under Rule 12(b)(6) and signals that Delaware courts should not prematurely weigh facts or draw inferences against employers seeking to enforce restrictive covenants at the motion-to-dismiss stage.

Key Takeaways

Restrictive covenants may survive pleading-stage challenges more readily than previously assumed. Employers with well-pleaded factual allegations regarding the scope, duration, and business justification for their restrictive covenants may not face dismissal under Rule 12(b)(6), even where the covenants have a nationwide scope, because the reasonableness of a covenant “is a fact-intensive inquiry.” 

Nationwide non-compete was not facially unenforceable. The Court specifically noted that Delaware has “never held that there is a bright-line rule under which a non-compete with a nationwide scope is facially unenforceable outside the context of a sale of a business." Employers with genuinely national operations and high-value customer relationships can craft enforceable nationwide restrictions.

Contingent consideration is sufficient. Equity awards, even those with no value at the time of issuance, can constitute valid consideration for restrictive covenants. The adequacy of that consideration is more properly assessed at a later stage through the balancing of the equities, not on a motion to dismiss. 

Circumstantial evidence of solicitation matters. Employers need not plead direct evidence of solicitation or misuse of confidential information to survive dismissal. Evidence of unusual customer losses following a key employee’s departure can be enough. 

Background

Payscale Inc. sued its former Senior Director of Sales, Erin Norman, after learning she had joined BetterComp, Inc., a direct competitor.  Norman had signed two incentive equity agreements containing non-compete, non-solicitation, and confidentiality provisions in exchange for Profit Interest Units (“PIUs”) in Payscale’s holding company (“Topco”). The non-compete barred Norman from engaging in competitive activity anywhere in the United States for eighteen months following her departure. The non-compete defined competitive activity as including “business conducted by [Topco] or any of its Subsidiaries as of [employee’s] Separation Date or any business proposed to be conducted by [Topco] or any of its Subsidiaries as evidenced by a written business plan in effect prior to [employee’s] Separation Date.”

The Court of Chancery granted Norman and BetterComp’s motion to dismiss, finding the non-compete facially unenforceable due to its nationwide scope and what it termed “vanishingly small” consideration, and concluding that Payscale’s allegations of breaches of the non-solicitation and confidentiality clauses were conclusory. 

The Supreme Court’s Holding

The Delaware Supreme Court reversed on all counts appealed, holding that the Court of Chancery improperly weighed the facts and drew inferences against Payscale at the pleading stage. 

Non-Compete Enforceability. The Court held that Payscale’s detailed allegations regarding its nationwide operations, Norman’s involvement in company-wide strategic decisions, and the customer-driven rationale for the restriction’s duration made it “reasonably conceivable” that the non-compete was enforceable as applied to Norman. In particular, the Court credited Payscale’s allegations that its high-value Enterprise customers maintain long-term, three-year contracts, making the eighteen-month restriction proportionate. The Court also rejected the lower court’s characterization of the restriction as having a “worldwide” scope, noting that the covenant’s express terms limit competitive activity to “anywhere in the United States.” 

Consideration. The Court drew a critical distinction between the role of consideration in contract formation and in the balancing of the equities. It held that the Court of Chancery erred in labeling the PIUs as “vanishingly small” consideration at the pleading stage, particularly given the contingent nature of the PIUs and the unresolved factual disputes regarding their value. The Court emphasized that “somewhat contingent” consideration still constitutes valid consideration for a restrictive covenant under Delaware law. 

Non-Solicitation and Confidentiality. The Court held that Payscale had adequately pleaded breaches of the non-solicitation and confidentiality provisions. Payscale alleged that at least five Enterprise customers defected to BetterComp within two months of Norman joining the company, and that approximately one-third of BetterComp’s employees were former Payscale employees. The Court held these particularized facts supported a reasonable inference that Norman solicited clients or disclosed confidential information. 

Tortious Interference. Because Payscale’s tortious interference claim hinged on the viability of its breach of contract claim, the Court also reversed the Court of Chancery’s dismissal of Payscale’s tortious interference claim.