On January 4, 2023, in Ainslie, et al. v. Cantor Fitzgerald, L.P., the Delaware Court of Chancery invalidated the forfeiture-for-competition provision in the financial services company’s limited partnership agreement, based on the court’s determination that the agreement’s non-competition provision was unenforceable.  (CA. No. 9436-VCZ (Del. Ch. Jan. 4, 2023).  As a result, the court determined that Cantor Fitzgerald Limited Partnership (the “Partnership”) owed withheld funds to several former partners (the “Former Partners”), which the Partnership withheld because it determined that the Former Partners engaged in competitive activity (as defined by the partnership agreement (the “Agreement”)).

The Partnership Agreement

Pursuant to the terms of the Agreement, each of the Former Partners had agreed to a one-year non-competition provision and a two-year non-solicitation provision. In addition, the Former Partners had agreed that upon withdrawing from the Partnership, they would be paid the balances in their capital accounts in four equal installments over four years. The Agreement contained a “forfeiture for competition” provision providing that a Former Partner would not be entitled to additional capital disbursements if the Former Partner engaged in competitive activity during the four-year payout period or if the Former Partner breached the Agreement.

Court’s Ruling

The court held that non-compete and non-solicitation provisions, which had a worldwide geographic scope, were geographically overbroad and unenforceable. Additionally, the court found the definition of “Competitive Activity” overbroad due to its inclusion of “any Affiliated Entity,” reasoning that “it is highly possible that a partner could unknowingly engage in a Competitive Activity.” Id. at 48. Notably, the court declined to “blue pencil” the provisions to make them more reasonable.

The court then focused on the forfeiture-for-competition provision triggered by “Competitive Activity.”  The court considered whether it should evaluate the forfeiture-for-competition provision (which the court called a “Conditioned Payment Device”) for reasonableness or apply contractual deference under the “employee choice” doctrine.  The court determined that “forfeitures do not enjoy this Court’s contractarian deference” and conducted a reasonableness analysis. Id. at 62.

Although the court applied a “lenient” reasonableness test, it nonetheless determined that the Conditioned Payment Device was unreasonable and invalid, given the broad definition of “Competitive Activity,” the lack of an established legitimate business interest for the broad restrictions, and the four-year temporal scope, which extended beyond the temporal scope of the contractual non-competition and non-solicitation provisions.  Id. at 66-67.

Notably, the court refused to apply the “blue pencil” doctrine to limit the scope of the forfeiture provisions. The court concluded that “conditions in the Conditioned Payment Device did not operate to preclude Cantor Fitzgerald’s duty to make those payments,” and that the Plaintiffs were entitled to recover the amounts owed.


This case follows on the heels of another notable Delaware Chancery Court decision by the same Vice Chancellor, Kodiak Bldg. P’rs, LLC v. Adams (Del. Ch. Oct. 6, 2022).  The Kodiak court invalidated a non-compete provision in an agreement for the sale of a business, notwithstanding the more lenient standard typically applied in the sale of business context, on the grounds that it was overbroad. The court then declined to blue pencil the provision.  We will monitor decisions from the Delaware Chancery Court to see if they follow suit.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.