Delaware’s long-standing reputation as a pro-business, employer-friendly jurisdiction has made the state a popular choice for employers’ state of incorporation, the location of their headquarters, and the state whose laws will govern disputes. However, in an apparent attempt to stem the tide of deciding disputes with little connection to the state, Delaware courts are pushing back against the use of contractual choice-of-law provisions designating Delaware as the governing law in employment and other agreements. This trend was reinforced by the recent decision in Fairstead Capital Mgmt. LLC v. Blodgett, No. 2022-0673-JTL, 2026 LX 205913 (Del. Ch. May 13, 2026).
There, the Chancery Court reiterated the concern that out-of-state companies routinely try to invoke Delaware law to override how other jurisdictions regulate employment relationships. Noting that the Chancery Court has issued dozens of decisions in the past five years concerning businesses and employees located in many different states (and countries), the court observed that Delaware courts should not adjudicate restrictive covenant and employment disputes for the country and potentially the world. Instead, a Delaware court “can stay within its lane” by avoiding automatically deferring to Delaware law to govern the affairs of the entities that Delaware charters. Id. at *35. Delaware risks jeopardizing that deference if it accommodates efforts to use the internal governance documents of Delaware entities to override the law of other states on issues of great importance to them.
Blodgett generally follows the principles espoused in Hightower Holding, LLC v. Gibson C.A. No. 2022-0086-LWW, 2023 WL 1856651 (Del. Ch. February 9, 2023), where the Delaware Chancery Court refused to enforce a Delaware choice-of-law provision in a sale and purchase agreement with a noncompete provision that arose out of a transaction in Alabama. The court instead applied Alabama law due to Alabama’s stronger public policy against agreements that restrain trade and found the noncompete agreement unenforceable.
In that case, defendant John Gibson and his partners sold the majority interest in their investment advisory company in Huntsville to plaintiff Hightower Holdings, LLC. The purchase agreement prohibited Gibson from establishing or working for a competing company for five years, but 13 months after the sale, Gibson opened a competing business. Hightower sued to enforce Gibson’s noncompete agreement, claiming it lost $3.3 million in business.
The court denied Hightower’s preliminary injunction application because Alabama was the default state whose law would apply if it were not for the Delaware choice-of-law provision in the purchase agreement. The court next determined that the Delaware choice-of-law provision was unenforceable because Alabama had a stronger public policy regarding restraint of trade agreements than Delaware, as expressed in the Alabama statutes regarding restraints of trade. Finally, the court determined that applying the Delaware choice-of-law provision would violate an Alabama fundamental public policy, as that state does not enforce restraints of trade against professionals, even in the sale of a business, and the noncompete was likely unreasonable in time and duration under Alabama law and more restrictive than necessary to protect the sale of the goodwill of the business. The Chancery Court concluded: “Despite the parties’ choice of Delaware law to govern their contracts, Alabama law—which has a substantially stronger relationship to this dispute than Delaware—applies. Alabama maintains a legislatively expressed public policy against broad non-compete provisions (particularly concerning professionals) that outweighs Delaware's interest in enforcing contracts.” 2023 WL 1856651 *1.