The Delaware Supreme Court’s decision in Payscale Inc. v. Erin Norman and BetterComp, Inc., No. 297, 2025 (Del. Mar. 19, 2026), is an important course correction for employers seeking to enforce restrictive covenants tied to equity incentive plans. In a reversal of the Court of Chancery, the Supreme Court held that Vice Chancellor David moved too quickly in dismissing Payscale’s claims at the pleading stage, before the factual record could be fully developed. The decision signals that equity-linked non-competes are not dead on arrival in Delaware — even when tied to incentive units with no immediate cash value.

Background

Erin Norman served as Senior Director of Sales at Payscale from November 2021 through December 2023. During her tenure, Norman signed two incentive equity agreements under which she received profit interest units. These units were nontransferable and carried no value at the time of issuance. Importantly, the agreements contained restrictive covenants — including a non-competition provision — that prohibited Norman from engaging in competitive activities anywhere in the United States for eighteen months following the end of her employment. The agreements also included a forfeiture provision: if Norman breached the covenants, her profit interest units would be cancelled.

Norman departed Payscale in December 2023. In October 2024, she joined BetterComp, Inc., a California-based compensation market pricing software company and direct competitor of Payscale. According to Payscale’s complaint, in the months after Norman began working for BetterComp, Payscale lost at least five Enterprise customers to the competitor and believed that several more Enterprise customers had also departed for BetterComp. Payscale filed suit in the Court of Chancery, asserting claims for breach of the restrictive covenants, tortious interference with contractual relations, and tortious interference with prospective business relations.

The Court of Chancery’s Ruling

On June 9, 2025, Vice Chancellor Bonnie W. David granted the defendants’ motion to dismiss all three counts. In analyzing the non-compete, the Vice Chancellor acknowledged that Norman had received some consideration in the form of the profit interest units but characterized that consideration as “vanishingly small.” The court concluded that this minimal consideration could not support the breadth of the restrictive covenant — an eighteen-month, nationwide non-compete. The court also declined to blue-pencil the agreement, finding that Payscale’s complaint failed to allege facts that would warrant judicial reformation of the non-compete into something narrower and enforceable.

The Supreme Court’s Reversal

The Delaware Supreme Court, in an opinion authored by Justice LeGrow and joined by Chief Justice Seitz and Justice Traynor, reversed the Court of Chancery’s dismissal and remanded the case for further proceedings.

The Supreme Court took issue with the lower court’s approach on several fronts. First, the court found that the Vice Chancellor erred in reaching definitive conclusions about the adequacy of consideration at the motion to dismiss stage. Determining the value of the profit interest units — and whether that value was sufficient to support the restrictive covenants — required factual development beyond what could be gleaned from the complaint alone.

Second, the Supreme Court addressed the geographic scope of the non-compete. Rather than viewing the nationwide restriction as inherently unreasonable, the court pointed to several case-specific factors that could support such a broad geographic limitation: Payscale operates nationally, Norman held cross-regional sales responsibilities that gave her access to customer relationships throughout the country, and Enterprise contracts typically run for three years — making the eighteen-month non-compete period only half the length of a typical customer relationship. These facts, when viewed in the light most favorable to the plaintiff at the pleading stage, made it premature to conclude that the geographic scope was unreasonable as a matter of law.

Third, the court indicated that the lower court’s refusal to consider blue-penciling was also premature. The question of whether the restrictive covenant could be judicially narrowed — and whether the circumstances warranted that remedy — required further factual development.

The Supreme Court also reversed the Court of Chancery’s dismissal of Payscale’s claims for breach of the non-solicitation and confidentiality provisions. The lower court had characterized these allegations as conclusory — pleaded merely “on information and belief” without supporting facts. The Supreme Court disagreed, pointing to Payscale’s specific allegations that at least five Enterprise customers had followed Norman to BetterComp within two months of her joining the competitor, that roughly one-third of BetterComp’s workforce consisted of former Payscale employees, and that Enterprise customers rarely switch vendors and are exceptionally difficult to recapture once lost. The court found these to be particularized factual allegations — not mere conjecture — that reasonably support an inference that Norman either solicited clients or disclosed confidential information enabling BetterComp to compete unfairly. Without discovery, the court noted, Payscale could not be expected to plead more.

Key Takeaways

This decision is a significant development for practitioners navigating the enforceability of restrictive covenants in Delaware, particularly in the context of equity incentive arrangements. As I previously discussed, Delaware courts have been increasingly skeptical of overly broad non-competes, and the Court of Chancery’s trend — reflected in cases like Kodiak and North American Fire — has been to closely scrutinize restrictive covenants linked to equity awards. The Supreme Court’s reversal in Payscale does not necessarily signal a retreat from that scrutiny, but it does send a clear message: enforceability of non-competes is a fact-intensive inquiry, and courts should not short-circuit that inquiry at the pleading stage.

For employers, the takeaway is that equity-linked non-competes can survive early legal challenge when there are specific, well-pled facts about the employee’s seniority, access to confidential information, and geographic reach. For employees, the lesson is that the post-Kodiak landscape — while more favorable — is not a guaranteed shield against enforcement. The case now returns to the Court of Chancery, where the ultimate enforceability of these covenants will be tested against a fuller factual record.