The public policies of California and Delaware both espouse freedom.  Ironically, the freedoms that they espouse are antithetical to each other.  California embraces the freedom of people to pursue any lawful and employment of his or her choice.  Hence, Section 16600 of the California Business & Professions Code declares, with narrow exceptions, covenants not to compete unenforceable.  Delaware, in contrast, embraces the principle of freedom of contract, even with respect to reasonable covenants not to compete.  The fundamental antagonism between these freedoms is evidenced by Vice Chancellor Sam Glasscock III’s recent ruling in Ascension Ins. Holdings, LLC v. Underwood, 2015 Del. Ch. LEXIS 19 (Jan. 28, 2015).

At issue in the case was a covenant not to compete entered into between a California resident and a Delaware limited liability company with its principal place of business in California.  Although the agreement was in negotiated in California and purported to prohibit competition in California, it included Delaware choice-of-law and choice-of-venue provisions.  The Vice Chancellor, moreover, found that absent the parties’ choice of Delaware law, California law would apply to the agreement.  That being the case, the Vice Chancellor found:

• The covenant not to compete would be void under California law;
• Performance of the covenant would conflict with a clear public policy of California “stated unequivocally by statute”; and
• California has a materially greater interest in the issue than Delaware.

In short, private ordering must give way to public policy and comity.