The Advisors' Blog

Weil’s Glenn West, whose blog we frequently share on DealLawyers.com, recently posted an important reminder for this audience coming from a recent Delaware Court of Chancery decision, Frontline Technologies Parent LLC v. Murphy (Del. Ch. Aug.23, 2023). Here’s an excerpt from the blog:

Frontline involved a dispute over the effect of a non-competition agreement contained in Equity Incentive Grant Agreements entered into between a parent entity, fund entities of the parent’s private equity owners, and employees of an operating subsidiary of that parent entity. Through the Equity Incentive Grant Agreements the employees received equity units in the parent, and in exchange agreed to certain non-competition covenants. But the operating subsidiary employer was not a party to the Equity Incentive Grant Agreements and the non-competition provision only prohibited the operating subsidiary’s employees from going to work for a competitor of the parent. […] The employees terminated their employment with the operating subsidiary and went to work for what was alleged to be a direct competitor of the operating subsidiary.

Vice Chancellor Will found that the “parent’s business was owning the operating subsidiary, not engaging in the business in which the operating subsidiary engaged.” And, concerning the plaintiff’s argument of mutual mistake:

Vice Chancellor Will acknowledged that what was intended by the non-competition agreement “was to prevent the employees from working for a competitor of its operating subsidiary.”  But what was intended and what was said were in this case two different things. According to the court, no showing was made here that the parties had reached “a specific prior understanding that differed materially from the written [equity grant] agreements” that were signed by the parties.  And simply failing to properly draft the restrictive covenant in a manner the plaintiff may have intended, to thereby support the equity grant that was given to the employee, was not, according to the court, a mutual mistake.

– Meredith Ervine