Delaware court enforces five-year non-compete signed during merger
In William Brian Derge v. D&H United Fueling Solutions, Inc., et al., the Delaware Court of Chancery enforced a five-year non‑compete signed in connection with a merger.
The dispute arose out of a merger transaction, where the acquiring company required key executives of the target company, including the plaintiff, to execute restrictive covenant agreements that included a non-compete. The non-compete prohibited the plaintiff, for a period of five years after closing, from “owning any interest in, managing, controlling, participating in, consulting with, rendering services for, or becoming engaged or involved with a business engaged in activities concerning fuel storage anywhere in the United States and each other country in which the [acquired company] generated revenue in the two-year period before the merger.” In exchange, the plaintiff received approximately $1 million in sale proceeds. Roughly one year later, the plaintiff resigned from the target company to join a competitor and sought to void the non-compete.
The court upheld the non-compete, emphasizing that covenants negotiated in the sale-of-business context are reviewed with “greater deference” than the more searching inquiry imposed in the employment context. It concluded (a) the non-compete was supported by “substantial consideration,” (b) the plaintiff did not lack bargaining power—even though he argued he had not negotiated the agreement and, owning less than 1% of the business, could not have influenced or vetoed the transaction—and (c) the non-compete was appropriately tailored to protect the buyer’s interests in preserving the goodwill of its acquired business by preventing senior executives like plaintiff, with extensive operational knowledge, from competing against it.
S&K Take: As we’ve previously covered, Delaware courts have increasingly scrutinized non-competes imposed in the employment context. However, this decision shows that non-competes continue to withstand scrutiny in the sale-of-business context when they are tied to meaningful consideration and carefully limited in scope, even if the restricted party was not a majority selling shareholder.
New York court enjoins business from continuing to solicit competitor’s clients
In Marsh & McLennan Agency LLC v. Alliant Insurance Services, Inc. et al., a New York federal court preliminarily enjoined two former Marsh employees and their new employer, Alliant (a Marsh competitor), from soliciting and accepting new business from Marsh’s clients. However, the court permitted Alliant and its employees to continue servicing clients who already moved to Alliant.
The dispute arose from covenants signed in connection with an acquisition by Marsh in 2021. As part of that transaction, one individual seller signed a restrictive covenant agreement (RCA) prohibiting him, for five years post-closing, from soliciting Marsh’s clients or hiring its employees. The rest of this individual’s team signed non-solicitation agreements (NSAs) prohibiting them from solicitating Marsh clients and employees for two years after leaving Marsh. In July 2025, the seller-employee left Marsh to join Alliant, and filed suit in Oregon state court seeking to void his covenants. His team and several Marsh clients moved to Alliant shortly thereafter, prompting Marsh to file suit in New York.
The court issued a partial injunction. On the one hand, it found that Marsh was likely to suffer irreparable harm if continued solicitation resulted in the loss of additional client relationships and goodwill. On the other hand, the court concluded that forcing Alliant to cease servicing clients who already left Marsh would not remedy that harm. It distinguished this case from others where anti-servicing restrictions were upheld due to misuse of proprietary information, which Marsh had not shown here. The court also rejected Marsh’s argument that Alliant’s alleged “pattern” of quickly poaching clients “before [competitors] even have a chance to file for an injunction” should justify injunctive relief, noting that remedies like tortious interference claims and punitive damages—aimed at deterring egregious conduct—are available at later stages, whereas preliminary injunctive relief serves a different purpose.
The court also held that the NSAs were enforceable because they reasonably applied only to Marsh clients with whom the employees had direct contact, and that the RCA was enforceable as to the seller-employee’s actual clients. However, the court held the RCA was overly broad to the extent it restricted the seller-employee from solicitating former clients of his former firm even if he had no contact with them during his employment.
S&K Take: The court’s 33-page decision offers valuable insight into both preliminary injunction standards and the scope of enforceable covenants not to solicit. The court’s refusal to bar the servicing of clients who had already moved, emphasizes that preliminary relief addresses future harm, not past losses. Additionally, the court’s partial enforcement of the client non-solicit is a reminder that such restrictions must be narrowly tailored to actual client contact, while blanket restrictions risk invalidation.
New York enacts “Trapped at Work Act,” restricting “stay‑or‑pay” arrangements
While not a litigation, New York enacted a new statute on December 19, 2025, called the Trapped at Work Act (the “Act”), which has immediate effect. The Act prohibits employers from requiring workers or applicants, as a condition of employment, to pay, or repay, their employer solely based on their departure before a specific time period. This restriction excludes certain payments, such as repayment of advances not used for employment related training. However—in doing so—it is unclear whether the statute also intends to permit repayment of sign on bonuses and retention bonuses under this carve out. At the same time, the statute remains silent regarding the forfeiture or clawback of incentive compensation, equity awards, or other restricted stock or similar compensation plans. Notably, the term “worker” is defined broadly to include not just employees, but also independent contractors, interns, volunteers, and sole proprietors providing services.
Any covered stay‑or‑pay provision is deemed void and unenforceable as against public policy. If a prohibited provision appears within a larger agreement, the remainder of the agreement remains enforceable if it can operate independently. The Act does not create a private right of action, but a worker who successfully defends against enforcement of a prohibited provision can recover attorneys’ fees. Also, the New York Department of Labor may also impose civil penalties ranging from $1,000 to $5,000 per violation, with each affected individual treated as a separate violation.
S&K Take: The Trapped at Work Act limits employers’ ability to use monetary penalties to deter early worker departures. While its most direct impact is on training repayments and similar stay‑or‑pay provisions, the Act’s broad language may also place pressure on liquidated damages clauses tied to notice periods and other arrangements that impose a financial consequence on a worker solely based on separation before a specified time period. Given the relative recency of the statute and the lack of clarity regarding its permissible scope, we will continue to monitor this area for additional guidance and developments.
