[co-author: Olivia Vladyka]
INTRODUCTION
On February 3, 2026, the Delaware Supreme Court issued its decision in North American Fire Ultimate Holdings LP v. Doorly,1 holding that equity units subject to forfeiture are valid consideration for a restrictive covenant. As non-compete agreements and other restrictive covenants continue to be closely scrutinized by courts, this decision clarifies employers’ ability to enforce restrictive covenants even when the equity that formed the consideration for the covenant has been forfeited by the employee.
ISSUE
Whether an executive’s noncompete agreement, to which he agreed in exchange for company equity, remains enforceable if those equity shares have been forfeited due to violations of a noncompete agreement.
BACKGROUND
Plaintiff’s company was acquired by North American Fire Ultimate Holdings (“NAF”) in 2021, and Plaintiff subsequently signed an “Incentive Unit Grant Agreement” that granted him 300,000 equity units in NAF vesting over time. The agreement included restrictions on the use of confidential information, non-solicitation of employees and customers, and non-competition.
NAF terminated Plaintiff’s employment for cause in December 2023, after discovering that he had formed a competing company. His vested and unvested incentive equity units were automatically forfeited according to the terms of the Incentive Unit Grant Agreement.
NAF then filed suit against Plaintiff seeking, among other things, to enforce the restrictive covenants. The Delaware Chancery Court granted Plaintiff’s motion to dismiss, holding that the equity units were the sole consideration for the restrictive covenants, and that once NAF declared that Plaintiff had forfeited the units, the contract became unenforceable for lack of consideration.
HOLDING
The Delaware Supreme Court reversed. The Court concluded that consideration is measured at the time of contract formation and is not reevaluated at the time of enforcement. The Court rejected the plaintiff’s attempt to distinguish Newell Rubbermaid Inc. v. Storm,2 in which the Delaware Chancery Court found that restricted stock units subject to vesting were adequate consideration because they “held actual value” at the time of formation. Although the value of the equity units at issue here was “somewhat contingent,” it was not illusory at the time of formation. The Delaware Supreme Court remanded the case to the Chancery Court for further proceedings.
CONCLUSION
This decision affirms that under Delaware law, consideration in employment contracts is evaluated at the time of formation. Importantly, this decision confirms that employers may continue to use equity units forfeited upon termination as consideration for non-compete and non-solicitation agreements in Delaware.
1 Case No. 142, 2025 (Del. 2026)
2 2014 WL 1266827 (Del. Ch. Mar. 27, 2014)
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