February 2026
Delaware Supreme Court: Employers may not be able to recover monetary damages for violations of overbroad restrictive covenants
The Delaware Supreme Court affirmed a Delaware Chancery Court ruling barring an employer from recovering monetary damages for its former executives’ breaches of restrictive covenants the lower court deemed overbroad.
The Chancery Court had previously denied injunctive relief, finding the covenants “unreasonably broad and unenforceable.” Following this ruling, the employer amended its claim to seek only damages. In doing so, the employer argued that the relief it sought made its claim more like forfeiture-for-competition cases—where competing employees forfeit a contingent benefit, but remain free to work—which Delaware courts are less skeptical of. The Chancery Court rejected the comparison. It held the distinguishing factor under Delaware law is “what the provision demands of the employee, not what the [employer] seeks as remedy for its breach.” It also declined to “blue pencil” the non-compete to make it more like a forfeiture-for-competition provision.
The employer appealed. On appeal, the Delaware Supreme Court adopted the lower court’s reasoning wholesale, confirming that employers cannot bypass a reasonableness review of restrictive covenants by seeking damages instead of injunctive relief.
S&K Take: This decision resolves an issue of first impression under Delaware law and means employers in that state cannot leverage otherwise unenforceable restrictive covenants by seeking damages instead of injunctive relief. It also reflects a growing trend in Delaware case law where courts are increasingly declining to “blue-pencil” restrictive covenants.
Pennsylvania Superior Court: restrictive covenants unenforceable where post‑hire consideration was insufficient and provisions reached preexisting relationships
The Pennsylvania Superior Court affirmed the denial of an employer’s request for preliminary injunction against three former advisors who joined a competitor, finding the nonsolicitation provisions unenforceable for lack of adequate consideration and because the restrictions reached beyond relationships formed during employment.
The court agreed that, in one advisor’s case, the nonsolicitation agreement lacked adequate consideration because it was signed after employment began and was supported only by his “continued participation” in the employer’s performance compensation program and a salary increase that the court characterized as a routine adjustment rather than new consideration. The court concluded these benefits did not constitute “new and valuable” consideration under Pennsylvania law.
The nonsolicitation prohibitions were also deemed overly broad to the extent they barred the advisors from accepting or assisting “any” former or potential customer, a scope the court found especially problematic because it could restrict personal relationships that predated the employment relationship. The opinion highlighted testimony showing that some clients had followed the advisors across multiple employers and, in one instance, that a later written carve‑out memorialized those preexisting client relationships, which further weighed against enforcing the restrictions as written.
S&K Take: This decision highlights the distinct considerations that apply to post‑hire restrictive covenants, particularly the need for adequate new consideration and the limits of protectible business interests. Courts consistently hold that such interests do not include personal relationships that predate the employment relationship, especially when those pre‑existing relationships are demonstrable by documentary evidence or expressly carved out by the parties.
Employers should ensure they fully understand how their recruiting technologies operate and avoid outsourcing employment decisions to AI systems that are not sufficiently clear or vetted. This includes assessing whether AI vendors’ practices could trigger federal or state consumer‑reporting obligations and confirming that required disclosures, authorizations, accuracy safeguards, and dispute‑resolution mechanisms are in place. As AI‑based hiring tools become more sophisticated and more widely adopted, their use will be scrutinized more closely.
EEOC urges Third Circuit to reconsider negligence standard for employer liability for third-party harassment
When are employers liable for harassment of employees by non-employees? That is what the Third Circuit is addressing as federal courts remain divided on the applicable standard.
As we reported last summer, the Sixth Circuit set a high bar for employees to hold employers liable for third-party harassment. It held that employers could only be liable if they “intentionally created or tolerated” the harassment. The Third Circuit is now addressing this same question in O’Neill v. University of Pennsylvania, and the U.S. Equal Employment Opportunity Commission (the “EEOC”) filed an amicus brief urging the court to apply the lower negligence standard applied by “nearly every other circuit.”
In O’Neill, a teaching assistant sued the university because a student allegedly engaged in intimidating and unwanted romantic conduct. The district court applied the Sixth Circuit’s intent-based standard and granted summary judgment to the employing university because there was no evidence the university “desired to cause” the harassment or was “substantially certain” it would occur.
The EEOC argued that this approach is inconsistent with Title VII and longstanding precedent. It reasoned that employer liability for third‑party harassment stems from an employer’s control over the work environment, not from the harasser’s employment status. It follows, said the EEOC, that a negligence standard—where an employer is liable if it “knew or should have known” of the harassment and failed to take prompt and appropriate corrective action—is more appropriate.
S&K Take: Third Circuit’s decision could be significant. If it sides with the Sixth Circuit, it would create a multi-circuit split on employer liability for third party harassment. If not, the Sixth Circuit would be the only outlier applying an intent-based vs. a negligence-based standard. However the court rules, employers should establish policies and procedures for reporting and addressing alleged third party harassment and take prompt remedial action if they learn such harassment occurred.
