A noncompete agreement that provided that an insurance brokerage would receive liquidated damages if a broker left the firm and a client later moved to her new company – even if the departing broker made no move to solicit her former client – is invalid, said the Delaware  Chancery Court in a ruling Tuesday.

Kelly Wark had signed such an agreement when she began to work for Wilmington, Delaware-based Lyons insurance Agency Inc. in 2014, according to the ruling in Lyons Insurance Agency Inc. v. Kelly Wark and Riggs, Counselman, Michaels & Downes Inc.

When Ms. Wark began working for Lyons, one of its existing customers was Greenwood, Delaware-based New Process Fibre Co., and she became its primary contact, according to the ruling.

In July 2016, Ms. Wark left Lyons and six months later began working for Riggs, Counselman. New Process became unhappy with Lyons’ customer service and asked Ms. Wark if she would participate in bidding for its business, but she refused, based on her noncompete agreement.

The bid process went forward without Ms. Wark’s participation, and New Process awarded its business to Riggs, Counselman. Lyons filed suit against Ms. Wark and the brokerage seeking liquidated damages.

The Chancery Court ruling by vice chancellor Sam Glasscock III said the liquidated damages provision “is unreasonable to the extent it purports to impose fixed damages untethered from any act or behavior by Wark beyond that of choosing to work for a competitor.”

It “requires Work to pay for Lyons’ lost business, whether she participated in the loss of that business or not. If applied under the facts here, the damages provision would operate as a penalty  untethered to Lyons’ reasonable interests in preventing competition by ex-employees, because the harm to Lyons for the loss of the New Process account is unrelated to any action taken by Wark,” it said.

“Effectively, the liquidated damages provision would transform Wark’s employment decisions into a kind of plaything of the lottery; she can decide to work for a competitor, but if any of her business from Lyons happens to transfer to that competitor, even if Wark did not bring the business over – even if she actively tries to stop it – she will be forced to pay a penalty to Lyons,” it said.

“An employer’s attempt to insure against such an open-market loss through a restrictive convent is an unreasonable restraint,” said the ruling, in granting Ms. Wark’s motion for summary judgment in the case.

Lyons attorney James S. Green Sr., an attorney with Seitz, Van Ogtrop & Green PA in Wilmington, said, “Although disappointed with the decision, I respect the vice chancellor and understand his reasoning.  I’m discussing the decision with my client currently.”

Ms. Wark and Riggs, Counselman’s attorney did not respond to a request for comment.

In December, an arbitrator issued a final award of $5.8 million to USI Insurance Services LLC in a dispute with ABD Insurance and Financial Services Inc. in a trade secrets appropriations case involving a former Wells Fargo Insurance Services USA Inc. benefits executive’s noncompete agreement.