Holdco SSR, LLC et al. v. Thompson, C.A. No. 2026-0071-JTL (Del. Ch. Apr. 14, 2026) (Laster, V.C.) & Lineage Capital II, L.P., et al. v. Beadles, et al., C.A. No. 2025-0253-PAF (Del. Ch. Apr. 29, 2026) (Fioravanti, V.C.)

After several recent decisions clouding the question of the enforceability of restrictive covenants in Delaware, the Delaware Court of Chancery (the “Court”) has recently reiterated the analysis applicable to the enforceability of restrictive covenants and entertained the possibility of blue penciling restrictions in restrictive covenants entered ancillary to the sale of a business. 

Upholding the restrictive covenants at issue and finding a likelihood of success on the merits, Vice Chancellor J. Travis Laster granted Holdco SSR, LLC et al.’s (“Plaintiffs”) requested preliminary injunction and in doing so, explained the “fundamental distinction” and “perspective shift” between the enforceability and interpretation of restrictive covenants in the sale of business context versus the employment context.

In July 2024, Plaintiffs acquired a majority interest in six related HVAC, plumbing, and refrigeration businesses (the “HVAC Businesses”) from founder Shane Thompson (“Thompson”).  In exchange for cash proceeds, Thompson agreed to restrictive covenants, including non-competition, non-solicitation, and confidentiality obligations.

After the sale, Thompson remained employed by the HVAC Businesses until separation in July of 2025.  Shortly thereafter, Thompson’s two daughters and Amber French, Thompson’s longtime employee, formed the entity Blue Collar Plumbing & Mechanical LLC (“Blue Collar”) which Plaintiffs allege is directly competitive.  Upon information and belief that Thompson was materially assisting his daughters and French with the formation of Blue Collar in violation of his restrictive covenants, Plaintiffs filed suit and sought preliminary injunctive relief.  Thompson’s argument against enforcement of the restrictive covenants primarily arose from supposed ambiguity of the provisions.  Vice Chancellor Laster disagreed.

In granting Plaintiffs’ motion for preliminary injunction, Vice Chancellor Laster explained the “fundamental distinction” between restrictive covenants entered ancillary to a sale of business as opposed to in the employment context.  While the Court emphasized the need to protect a former employee’s “legitimate interest in earning a living”, sale of business restrictive covenants stand on different ground.  A seller, having “achiev[ed] a premium” for the business sold, is intended to stay “on the sidelines” following the sale, even if the restrictive covenants are not drafted with the precision required of employment context covenants. 

Rejecting Thompson’s argument that ambiguity in the restrictive covenants rendered them unenforceable, the Court emphasized that in the sale of business context, “the necessary lack of precision in the English language . . . actually serves the policy goal of keeping the seller on the sidelines[.]”  This is designed to instill buyers of a business with “some degree of confidence that they are actually getting the economic value of the business as a going concern[.]”  In exchange for the substantial consideration inherent in the sale of a business, it is appropriate for sellers to “sit on the sidelines and not undermine the business that [they] have just sold[.]”  Thus, the Court explained that in contrast to employment agreements, where “provisions that are fuzzy around the edges have a disproportionate chilling effect on employees and are dangerous for that reason”, in the sale of business context, “having some degree of play in the joints of the provision helps keep those people on the sidelines, which is critical to having these transactions in the first place.”

This ruling stands in contrast to the recent swathe of decisions striking down restrictive covenants in the employment context, reaffirming Delaware’s commitment to enforcing sale of business restrictive covenants. 

In a similar acknowledgement of the distinction between employment and sale of business restrictive covenants, Vice Chancellor Paul A. Fioravanti, Jr. recently entertained blue penciling a no-use covenant arising from the sale of a business.  There, the Court was addressing the scope of a permissible non-use provision at the temporary restraining order stage, with the defendants arguing that the provision, read literally, would present a world-wide and perpetual restriction.  Remarking the need for further factual development to support whether the provision protected a legitimate business interest, Vice Chancellor Fioravanti nevertheless noted that “I am satisfied that I would likely blue-pencil the non-use provision to make it reasonable, which is . . . a fact-intensive process that will also require further factual development.”  While the Court of Chancery has always maintained the discretion to blue pencil, it has strongly refused to exercise that discretion in recent restrictive covenant cases.  Vice Chancellor Fioravanti’s stated willingness to blue pencil restrictive covenants ancillary to a sale of business indicates the Court of Chancery’s willingness to ensure buyers and sellers obtain the benefit of the bargain, even if the scope of certain restrictions were drafted with less than ideal precision.

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