Court ruling exposes fatal flaws in how companies structure restrictive covenants
Delaware court tosses worldwide non-compete spanning 68 countries, finding profits interests insufficient to ban employee from working in his field.
The January 22 ruling from the Delaware Court of Chancery should grab the attention of any HR leader using non-competes to protect company secrets and client relationships. The decision makes clear that worldwide restrictions backed by equity compensation might not hold up when tested in court.
Benjamin Timm spent five years climbing the ladder at Daxco, a company that sells software to gyms and fitness studios. He started in digital marketing and eventually ran worldwide sales for Zen Planner, one of the company's member management products targeting boutique fitness businesses.
When Daxco promoted Timm to Vice President in December 2023, the company sweetened the deal with 150,000 Class P Units, a type of profits interest that would vest over time. In exchange, Timm signed a restrictive covenant that prohibited him from working for competitors for two years after leaving. The restriction covered any company providing software-as-a-service to health and wellness businesses in any location where Daxco or its affiliates operated. According to the company, that meant 68 countries including the United States, Canada, the United Kingdom, Australia, New Zealand, and essentially the rest of the world.
Timm lasted just one year in the VP role before resigning in April 2025. He first joined eGym, a workout equipment and software company that Daxco had approved. But he later moved to Wodify Technologies, a direct competitor offering software to boutique gyms. In August 2025, Daxco employees working a booth at the CrossFit Games in Albany spotted Timm across the floor wearing a Wodify shirt and staffing their competitor's booth.
The company responded quickly, firing off a demand letter seeking the return of $52,241 it had paid to buy back his vested units and insisting he quit Wodify immediately. When Timm refused, Daxco sued. The case landed before Master Hume, who found the non-compete unenforceable for several reasons.
The geographic scope posed the first problem. The agreement essentially barred Timm from working near any gym anywhere in the world that used Daxco software. That restriction bore no relationship to where Timm actually worked or built client relationships. He managed one product line, not global operations across 68 countries. The court found this failed the reasonableness test.
The agreement also tried protecting the business interests of multiple affiliates in the corporate family, including a Canadian subsidiary and an Indian tech company employing 210 software developers. But the contract never described what these affiliates actually did or why Timm posed a competitive threat to businesses he never worked for. The court found that fatally vague.
The compensation question proved decisive. Those 150,000 units vested in annual chunks over five years, meaning Timm could count on receiving just half the total if he stayed the full term. The other half would vest only if the company sold at specific price targets that Timm could neither predict nor control. After one year, he walked away with about $52,000. The court said that contingent compensation could not justify banning someone from working in their field worldwide for two years.
The ruling drew a sharp contrast with cases involving business sales, where sellers receive substantial consideration upfront and courts show more flexibility with non-compete terms. Delaware courts have been tightening the screws on employment non-competes, and this decision continues that trend. The court emphasized that employers and employees do not bargain on equal footing. While Daxco told Timm he could consult a lawyer before signing, nothing suggested the two sides actually negotiated the terms.
That distinction mattered when Daxco asked the court to trim the agreement down to something enforceable through blue-penciling. The court refused, explaining that remedy works better when sophisticated parties of equal bargaining power hammer out a deal together, like in a business sale. Employers cannot write overly broad restrictions and expect courts to fix them later.
For HR teams, the decision offers clear guidance on what makes non-competes unenforceable. Tailor restrictions to what employees actually did and where they actually worked. Make sure the compensation justifies the restriction. Avoid protecting affiliates the employee never worked with. Describe with specificity what business activities are restricted and where. And remember that profits interests with distant, contingent vesting schedules may not count as adequate consideration for sweeping geographic restrictions.
