Court of Chancery Finds Non-Compete Related Provisions in Partnership Agreement Unenforceable
In Ainslie v. Cantor Fitzgerald, L.P., the Delaware Court of Chancery considered the tension between employment law and partnership law, in the context of non-compete provisions set forth in a partnership agreement.
The plaintiffs, who were former partners of Cantor Fitzgerald Limited Partnership, challenged provisions contained in the Partnership’s limited partnership agreement that restricted partners from competing, soliciting clients or employees, or using the confidential information for a period of time after leaving the Partnership.
The Partnership Agreement restricted competitive activities in two ways. First, the Partnership prohibited certain competitive activities (the “non-compete provisions”) for up to two years, and a breach of such provisions entitled the Partnership to seek injunctive relief and damages. Second, the Partnership was permitted to withhold certain compensation payable to a former partner if such person (i) breached the non-compete provisions or (ii) engaged in any competitive activity during a four-year period, whether or not such activities constituted a breach of the non-compete provisions (the “Conditioned Payment Device”).
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Tarik J. Haskins, “Court of Chancery Finds Non-Compete Related Provisions in Partnership Agreement Unenforceable,” Month-In-Brief: Corporations, LLCs & Partnerships, ABA Business Law Today (February 2023).