Defeating a Delaware Choice-of-Law Clause in Non-Competes for Out-of-State Employees

Understanding Delaware Choice-of-Law Clauses

Because over a million businesses are incorporated in Delaware, many employers automatically insert a "Delaware Choice-of-Law" provision into their employment contracts. This means they want the Delaware Court of Chancery, Wilmington to interpret the contract, utilizing Delaware's historically business-friendly rules that often allow restrictive covenants. However, if you live and work in California, New York, or Colorado, being held to Delaware standards can feel deeply unfair. The good news is that just because a contract says "Delaware law applies" does not mean a judge will automatically agree. A legal doctrine known as the Restatement (Second) of Conflict of Laws § 187 helps courts decide which state's law truly governs. If you are an out-of-state employee facing a lawsuit in Delaware, you should immediately look to hire a skilled attorney from our US Lawyer Directory.

Step-by-Step Guide to Defeating the Jurisdiction Clause

The fight over a non-compete often begins with a battle over location. This is known as the "race to the courthouse." Here is how different out-of-state workers can strategically handle this complex legal conflict.

Step 1: CA Remote Workers and Section 16600

California enforces one of the strictest bans on restrictive covenants in the country under Cal. Bus. & Prof. Code § 16600 and Cal. Bus. & Prof. Code § 16600.5, which voids any non-compete contract regardless of where or when it was signed and entitles employees to damages and attorney fees. Furthermore, under Cal. Lab. Code § 925, employers are strictly prohibited from requiring California-based employees to agree to out-of-state choice-of-law or forum selection clauses as a condition of employment, making such provisions voidable at the employee's request. The Delaware Court of Chancery has repeatedly respected these boundaries under the Restatement (Second) of Conflict of Laws § 187. In Focus Financial Partners, LLC v. Holsopple, 241 A.3d 784 (DE Court of Chancery 2020), the Court held that California's fundamental public policy against non-competes overrides a contractual choice of Delaware law and refused to enforce Delaware choice-of-law and forum provisions against a California employee pursuant to Cal. Lab. Code § 925, dismissing the Delaware action because California held a materially greater interest in protecting its workers.

Step 2: Tech Executives in New York and Colorado

States like Colorado have recently enacted strict financial thresholds for non-competes. If you are a tech executive in Denver or Manhattan, your employer might try to bypass your home state's worker protections by rushing to the Delaware Chancery Court. Your legal team must prove that the "jurisdictional nexus" to Delaware is weak. If the only connection to Delaware is a simple piece of incorporation paper, while all your sales, clients, and physical offices are in New York or Colorado, the court may determine that Delaware is an improper venue to hear the employment dispute.

Step 3: Filing a Declaratory Judgment First

The most effective way to defeat a Delaware clause is to strike first. If you know you are resigning to join a competitor and expect your employer to sue you in Delaware, your attorney can proactively file a "Declaratory Judgment" action in your home state's local court (e.g., a Superior Court in your county). By filing first, you are asking a judge in your home state to officially declare the non-compete void under local law. Once your home state takes jurisdiction of the case, it becomes incredibly difficult for the employer to successfully launch a parallel lawsuit in Delaware.

How Much Does a Jurisdictional Battle Cost?

Litigating across state lines is expensive. Unlike personal injury cases, business litigation attorneys typically charge hourly rates:

• Initial Strategy & Review: Lawyers usually charge a flat fee of $500 to $1,500 to review the contract and assess the strength of the choice-of-law clause.
• Filing a Declaratory Judgment: Initiating the lawsuit in your home state typically requires an initial retainer of $5,000 to $10,000.
• Defending an Injunction in Delaware: If the employer successfully files in Delaware first, hiring local Delaware counsel to fight the temporary restraining order can quickly cost $15,000 to $30,000+ in the first month alone.

How Long Does the Process Take?

The jurisdictional battle is usually decided at the very beginning of the lawsuit. If your employer initiates an expedited action in Delaware by filing Form Supplemental Information Sheet, Delaware, Delaware Court of Chancery, Supplemental Information Sheet alongside an emergency motion for a Temporary Restraining Order (TRO), the hearing will happen within 14 to 21 days. The judge will typically decide on the choice-of-law issue during this rapid phase. If you successfully transfer or dismiss the case to your home state, the broader litigation over the actual non-compete can take six months to over a year to fully resolve.

Frequently Asked Questions (FAQ)