Delaware Continues To Strike Down Overbroad Restrictive Covenants In Business Sales

The Delaware Court of Chancery has reminded us again that the parties in business-sale transactions must precisely draft restrictive covenants to be enforceable.

In its March 4, 2026 decision in BluSky Restoration Contractors, LLC v. Robbins & Popwell, the Court invalidated noncompetition and nonsolicitation provisions it found overly broad. The opinion continues the trend from Intertek Testing Services NA, Inc. v. Eastman, 2023 WL 2544236 and Kodiak Building Partners, LLC v. Adams, 2022 WL 5240507 where the Court signaled that it won't hesitate to strike down sale-of-business covenants that exceed Delaware's reasonableness standards.

A Consistent Pattern of Heightened Scrutiny

While Delaware traditionally affords buyers more leeway than do other states when enforcing restrictive covenants tied to the sale of a business, recent cases show the Court is increasingly unwilling to uphold covenants that exceed the boundaries of the acquired company's actual business footprint or legitimate protectable interests. The BluSky decision reinforces this trend.

Background

BluSky Restoration Contractors, a nationwide restoration company, acquired in December 2019 a Tennessee regional restoration business co-founded by the sellers. The sellers agreed to multiple restrictive covenants in the transaction documents and employment agreements, including:

• a five-year, worldwide noncompete; and
• broad nonsolicitation restrictions covering customers, employees and affiliates.

The sellers later resigned as employees of BluSky and launched a competing venture. BluSky sued, alleging breach of the restrictive covenants and misuse of confidential information and sought a preliminary injunction. The sellers countered that the covenants were unenforceable.

Why the Court Invalidated the Covenants

The Court of Chancery agreed with the sellers and refused to enforce the restrictive covenants. The Court found multiple aspects of the covenants to be unreasonably overbroad:

• Geographic scope. The covenants imposed a worldwide restriction, despite the acquired company operating only on a regional basis. The Court held that the geographic scope far exceeded what was necessary to protect BluSky's legitimate interests.

• Substantive scope. The provisions prohibited even attempts to induce or persuade any customer or employee and extended to all of BluSky's affiliates. The Court found these prohibitions too sweeping and not properly tied to the actual business purchased.

• Duration. While five-year non-compete or non-solicit terms are sometimes acceptable in sale-of-business contexts, the Court held that, when combined with a worldwide reach and overly broad substantive terms, a five-year duration contributed to overall unreasonableness.

No Blue Penciling

BluSky asked the Court to "blue pencil", i.e., rewrite the covenants to narrow them to what the Court thought enforceable. The Court declined, reiterating its reluctance to reform overbroad agreements. The Court emphasized that judicial rewriting would undermine the expectation that parties draft reasonable restrictions from the outset and encourage sloppy or overly aggressive drafting.

Implications for Buyers and Deal Drafters

The Kodiak, Intertek and now BluSky decisions signal a clear message: Delaware courts will enforce sale-related restrictive covenants only when they are precisely tailored to the actual competitive landscape and legitimate business interests acquired. Buyers should not assume that the context of a business sale guarantees enforceability.

Key takeaways are:

1. Tailor geographic limits to the acquired company's real operating footprint. Assume Delaware courts will reject broad or global restrictions unless the business truly competes on that scale.
2. Narrowly define prohibited activities and covered entities. Restrictions should match the acquired business operations, not the buyer's entire enterprise.
3. Draft with precision; do not rely on judicial reformation. Delaware courts are signaling that they simply will toss out overbroad covenants and not try to rewrite them to suit the parties.
4. Align duration with reasonableness and context. Even longer terms that were reasonable in other sale-of-business cases are vulnerable when paired with sweeping scope.