Payscale Inc. v. Erin Norman and Bettercomp, Inc., 2025-0118-BWD (June 9, 2025).
On June 9, 2025, Vice Chancellor Bonnie W. David granted a motion to dismiss after holding that a noncompete provision was unreasonable in scope and therefore unenforceable. The Court further held that claims for tortious interference with contractual relations and tortious interference with prospective business relations failed to state a claim.
Factual Background
Payscale Inc. (“Payscale”) is a corporation that provides compensation data, software, and services throughout the United States. Erin Norman (“Norman”) worked for Payscale from November 29, 2021, through December 1, 2023.
Non-party Sonic Topco, L.P. (“Topco”) is the parent holding company for Payscale and its subsidiaries. On March 14, 2020, Topco and Norman entered into an incentive equity agreement (the “First Incentive Agreement”) which, among other things, included a covenant not to compete (the “Noncompete”), a nonsolicitation covenant (the “Nonsolicitation Provision”), and confidentiality obligations.
The Noncompete provided that for a period of eighteen months following Norman’s departure from Payscale, Norman was not to engage in any “Competitive Activity” or she would forfeit certain profit interest units received from Topco. “Competitive Activity” was defined as to “own, manage, operate, control, participate in, render services for, or in any other manner engage in, anywhere in the United States, any Competitive Business other than for or on behalf of [Topco] or any Subsidiary of [Topco].” “Competitive Business” was defined as “any business conducted by [Topco] or any of its Subsidiaries as of [Norman]’s Separation Date or any business proposed to be conducted by [Topco] or any of its Subsidiaries as evidenced by a written business plan in effect prior to [Norman]’s Separation Date.”
The Nonsolicitation Provision further prohibited Norman from inducing or attempting “to induce any employee, advisor or independent contractor of any member of the Partnership Group to leave the employ or engagement of the Partnership Group” or “induce or attempt to induce any client, customer, supplier, vendor, licensor, lessor or other business relation of any member of the Partnership Group (or any prospective client, customer, supplier, vendor, licensor, lessor or other business relation with which any member of the Partnership Group has entertained discussions regarding a prospective business relationship) to cease or refrain from doing business with any member of the Partnership Group” for eighteen months following Norman’s departure.
On August 14, 2023 Topco and Norman entered into another incentive equity agreement (the “Second Incentive Agreement” and with the First Incentive Agreement, the “Incentive Agreements”). Pursuant to the Second Incentive Agreement, Norman received additional profit interest units. The Second Incentive Agreement contained the same restrictive covenants as the First Incentive Agreement.
On December 1, 2023, Norman left Payscale and in October 2024, joined BetterComp, Inc. (“BetterComp”), a California “compensation market pricing software company and direct competitor of Payscale.” On November 22, 2024, Payscale informed Norman that she was in breach of the Restrictive Covenants.
Court Holds that the Overly Broad Noncompete is Unenforceable
The Court began its analysis of the restrictive covenants by noting that Delaware courts do not mechanically enforce non-competes and will enforce such provisions only when they are “(1) reasonable in geographic scope and temporal duration, (2) advance a legitimate economic interests of the party seeking its enforcement, and (3) survive a balancing of the equities.”
In applying this test, the Court found the first and second prongs to be fatal to Payscale’s enforcement of the Noncompete. In summarizing the Noncompete, the Court noted that for “an eighteen-month period, Norman is prohibited from working anywhere in the country, in almost any role, for any company engaged in business that Topco or its subsidiaries were conducting or had proposed to conduct as of Norman’s departure.”
Beginning with the first prong, geographic scope and temporal duration, although the Court found that the Noncompete’s eighteen-month duration was not unreasonable in isolation, the nationwide scope of the Noncompete was unreasonable. The Court noted that nationwide scopes are not unenforceable per se, but they are enforced “only in instances where the competing party agrees, in connection with the sale of a business, to stand down from competing in the relevant industry . . . anywhere . . . for a stated period of time after the sale.” The Court noted that “where, as here, an employer provides an employee only minimal consideration to secure a noncompete, this Court has found a nationwide scope overbroad.”
In analyzing the scope of the Noncompete, the Court considered Defendants’ argument that the consideration in exchange for the Noncompete was not just minimal, but in fact, illusory, and therefore no enforceable contract was ever formed, relying on the Court of Chancery’s recent decision in North American Fire Ultimate Holdings, LP v. Doorly. In Doorly, the Court of Chancery held that where an “employer ‘declared that [the employee] forfeited the Units’ by breaching the restrictive covenants, the employer ‘eliminated the sole consideration for the restrictive covenants.’” Defendants argued that, as in Doorly, the only consideration for the noncompete was the nontransferable profit interest units, which were automatically cancelled upon any purported breach, eliminating the sole consideration. The Court ultimately explained that it did not need to go so far as to decide that no consideration was exchanged for the Noncompete, because even if the profit interest units had some value, it was reasonably conceivable that the consideration was so vanishingly small that it could not support an eighteen-month, nationwide prohibition as broad as that called for by the Noncompete.
Next, considering the second prong, the Court turned to whether the Noncompete protected Payscale’s legitimate business interests and concluded that it did not. The Court noted that the Noncompete’s nationwide scope was compounded by the unlimited geographic scope of the Nonsolicitation Provision, which banned “soliciting even prospective clients.” The Court noted that, practically speaking, the Nonsolicitation Provision would restrain Norman from working worldwide in the defined business and such international scope exceeded Payscale’s legitimate economic interests.
The Court also noted that because the Noncompete not only applied to Payscale, but also to Topco and all of its unnamed subsidiaries, without even describing any of those businesses generally, the Noncompete was also unreasonably vague. The Court rejected the argument that certain limitations to the definition of “Competitive Activity” saved the Noncompete, concluding that even with those limitations, the provision prohibited activity beyond Payscale’s legitimate economic interests.
After finding the Noncompete overbroad and unreasonably vague, the Court declined to blue pencil the provision. The Court was unpersuaded that discretionary blue penciling was warranted because, among other things, Norman did not enter into the Noncompete through the sale of a business, and the facts as alleged did not demonstrate equal bargaining power or that the restrictive covenant provisions were even negotiated.
Conclusory Allegations Insufficient to State A Claim for Breach of Nonsolicitation Provision and Confidentiality Provision
The Court further held that the complaint failed to adequately allege that Norman breached the Nonsolicitation Provision or her confidentiality obligations. Payscale alleged “on information and belief” that through her work at BetterComp, Norman solicited Payscale’s customers or prospective customers and was using Payscale’s confidential information to solicit prospective customers to enter into contracts with BetterComp instead of Payscale. The Court found that Payscale’s allegations were unsupported by additional pled facts and therefore were conclusory allegations that failed to state a claim for breach of either provision.
Payscale Failed to State A Claim For Tortious Interference with Contractual Relations or with Prospective Business Relations
Finally, the Court analyzed the remaining claims for tortious interference and found that neither stated a claim.
As to Payscale’s claim for tortious interference with contractual relations, the parties’ conceded that such claim relied on the enforceability of the contract and therefore failed due to the dismissal of the claim for breach of the Noncompete.
As for Payscale’s claim for tortious interference with prospective business relations, the Court explained that to prevail on such a claim, a plaintiff must “identify a specific party who was prepared to enter into a business relationship but was dissuaded from doing so by the defendant.” The Court held that plaintiff failed to meet its burden to plead facts that supported “an inference of either a reasonable probability of any specific business opportunity, or intentional interference with any such opportunity.” The Court also concluded that Payscale had not adequately alleged that BetterComp had unfairly competed for Payscale’s employees because the only “wrongful” conduct alleged was violation of the Noncompete, which the Court had already found unenforceable.