Recent Decisions Amplify Delaware Law on Forum Selection Provisions and Bylaws

In four recent decisions, the Delaware Court of Chancery has addressed forum selection provisions and exclusive forum bylaws in various contexts. In three of the cases, the court rejected applying a Delaware forum selection provision or bylaw—in two of the cases, in the context of employment-related disputes and, in one case, in the context of a reincorporation from Delaware. In the fourth case, the court provides a relevant drafting lesson.

• In GI DI Rushmore Parent v. Stoop (“Bluepeak”) (June 10, 2026), the court refused to enforce, against an employee who lived and worked in Oklahoma, a Delaware forum selection provision that was incorporated by reference into an equity incentive award, from a partnership agreement that was not accessible to the employee.
• In Masimo v. Kiani (Apr. 21, 2026), the court refused to enforce, against an employee who lived and worked in California, a Delaware exclusive forum bylaw, in connection with a dispute relating to an employment agreement that contained a California exclusive forum provision.
• In Tesla Deriv. Litig. (Apr. 13, 2026), the court enforced, retroactively, with respect to conduct occurring before the company reincorporated from Delaware, a Texas exclusive forum bylaw adopted when the company reincorporated.
• In Kelly Roofing v. Flores (June 4, 2026), the court provided a drafting lesson for ensuring clarity as to whether a forum selection provision is mandatory or merely permissive.

Notably, in Bluepeak, the court expressed concern over the “proliferation” of restrictive covenant cases “impose[d] on [the Court of Chancery] [by] [p]rivate-equity-backed businesses [that] have embraced the legal technology of building restrictive covenants into equity grants.” The court stated that the combination of restrictive covenants, Delaware forum selection provisions, and Delaware governing law provisions “calls on the Delaware courts to adjudicate post-employment disputes for the country and potentially the world.” The court wrote: “[This is] a burden that [the Court of Chancery] will never have sufficient resources to bear.”

Bluepeak—Chancery Rejects Enforcement of Delaware Forum Selection Provision in Dispute Over Restrictive Covenants in Employee’s Equity Grant.

In Bluepeak, the Court of Chancery declined to enforce restrictive covenants contained in an equity award agreement with an employee who lived and worked in Oklahoma. A holding company (“Holdco”) controlled by a private equity firm sought a preliminary injunction against a former Vice President (the “Employee”) at its portfolio company, Bluepeak. Allegedly, the Employee was recruited to Bluepeak and agreed to take a significant pay cut based on promises of equity upside. Six weeks into his tenure, the Employee was presented with a take-it-or-leave-it Incentive Unit Equity Agreement containing restrictive covenants applicable during his employment and for two years thereafter. The Unit Agreement selected Delaware law for certain purposes; and it incorporated by reference (and stated that the Employee had received and reviewed) Holdco’s Partnership Agreement, which contained a Delaware forum selection provision. However, the Partnership Agreement was never provided to the Employee (although he had asked for it)—Holdco treated the Partnership Agreement as highly confidential  and only a few C-suite executives had ever seen it.

The Employee resigned soon thereafter and joined an alleged competitor of Bluepeak. Holdco sued, in Delaware, to enforce the non-compete provision in the Unit Agreement. The court declined Holdco’s request for a preliminary injunction. Vice Chancellor J. Travis Laster held that the Court of Chancery did not have personal jurisdiction over the Employee (who lived and worked in Oklahoma); and, in addition, that, in any event, Oklahoma law applied to the employment-related provisions in the Unit Agreement. The Vice Chancellor stated that, even if Delaware law applied, it would be unreasonable to enforce the Delaware forum selection provision.

First, the court, applying the relevant factors cited in the Restatement (Second) of Conflict of Laws, noted that Oklahoma was the place of contracting, negotiations, performance, subject matter, and the Employee’s domicile. Second, the court found that Oklahoma’s “Oklahoma Access Statute,” which voids contractual provisions restricting access to Oklahoma courts, overrode the Delaware forum selection provision. Third, the court stated that, even under Delaware law, enforcing the Delaware forum selection provision would be unreasonable as (i) the Employee had not been provided notice of the provision because it appeared in a document he could not access; (ii) Delaware did not make sense as a forum for an employment dispute centered in Oklahoma; and (iii) the Employee did not have the option to reject the Unit Agreement with impunity, as he had already resigned from his prior employer and started at Bluepeak before he ever saw it.

The decision underscores that Delaware courts are disinclined to adjudicate disputes over restrictive covenants embedded in equity award agreements of employees living and working in other states—particularly when the employee was prevented from seeing the document containing the Delaware forum selection provision.

Based on this case:

• It may be difficult to obtain Delaware enforcement of restrictive covenants when they are imposed against an “ordinary employee” living and working outside Delaware. Generally, such enforcement should be obtainable, however, where the parties had similar negotiating power, such as in the context of the sale of a business or an agreement with a C-suite-level employee or other employee with sufficient leverage that the company would be willing to change its standard documents.
• A Delaware forum selection provision should not be hidden in a document not provided to the employee. The court may disregard a form recitation in an equity award or agreement that the recipient received and reviewed a governing document (in this case, Holdco’s Partnership Agreement) when there is evidence that the award recipient was refused access to that agreement.

Masimo—Applying New DGCL Section 122(18), Chancery Enforces a California Forum Selection Provision in an Employment Agreement Notwithstanding a Delaware Exclusive Forum Bylaw.

In Masimo, the Court of Chancery granted a motion to dismiss the claims by Masimo Corp. (the “Company”) against its founder and former CEO-Chairman-controlling stockholder (the “Defendant”) for breach of his fiduciary duties. The court held that, notwithstanding the company’s bylaw designating Delaware as the exclusive forum for resolving intra-corporate disputes, the California forum selection clause in the Defendant’s employment agreement was enforceable and the dispute should be adjudicated in California.

The dispute arose when the Defendant resigned his positions at the Company and brought suit in California to obtain severance payments he alleged were due under his employment agreement. The Company brought suit in Delaware to invalidate the employment agreement on the basis that it was the product of the Defendant’s alleged breaches of fiduciary duty. The Defendant argued that the employment agreement’s California forum selection clause required that the Company’s claims be pursued in California. The Company contended that its Delaware forum selection bylaw required that the dispute be adjudicated in Delaware because fiduciary duty claims were asserted. The court noted, first, that the bylaw expressly permitted non-Delaware forum when the company expressly had agreed to it, and that the Company had so agreed in the employment agreement. Second, the court stated that, while it once was the law in Delaware that fiduciary duty claims must be adjudicated in Delaware, “it no longer is, at least for governance agreements under recently enacted [DGCL] § 122(18).”

The court stated that Section 122(18), which governs stockholder agreements granting governance rights, “expressly authorizes a corporation to enter contracts with current or prospective stockholders and to provide for adjudication in alternative fora.” The court noted that Section 122(18) provides that “a corporation can contract for governance arrangements with stockholders without offending § 141(a) (‘141(a) Exclusion’), so long as those contracts do not otherwise violate the certificate of incorporation or other provisions of the DGCL, except for § 115 (‘115 Exclusion’).” Section 115 bars contractual provisions that prohibit Delaware jurisdiction for fiduciary claims. The court stated that the Legislature’s synopsis of the new rule makes clear that the 115 Exclusion means that contractual provisions prohibiting Delaware jurisdiction for fiduciary claims are now permissible for stockholder agreements covered by new Section 122(18).

The court held, further, that the employment agreement at issue was at least in part a “stockholder agreement” granting governance rights, and so was covered under Section 122(18). The court noted that the Defendant was the Company’s controlling stockholder and that the employment agreement included provisions relating to material matters of governance, including change‑in‑control triggers, supermajority for‑cause removal, and Chairman/lead‑director provisions. Also, the court held that the employment agreement’s forum selection clause was sufficiently broad to extend to the fiduciary duty claims the Company asserted, as they “arose out of or relate[d] to” the agreement. The court noted that that phrase is broadly construed under both Delaware and California law, and that Masimo had conceded that the claims would not exist absent the employment agreement.

Accordingly, based on this decision:

• Under DGCL Section 122(18), a Delaware corporation can provide for a non-Delaware forum for resolution of disputes over internal corporate affairs, including in an employment agreement with a controlling stockholder and relating to claims of breach of fiduciary duties.
• An employment or other agreement, even if not styled as a “Stockholders Agreement” or “Governance Agreement,” may be considered a stockholder agreement covered under Section 122(18) if it includes provisions relating to material governance matters, such as board composition or control.
• A forum selection provision in an employment agreement with a stockholder, for the resolution of disputes “arising out of relating to” the agreement, may cover claims of breach of fiduciary duties, at least if the claims “would not exist absent the agreement.”

Tesla—Chancery Holds Tesla’s Texas Forum Selection Bylaw is Enforceable Retroactively.

In In re Tesla, Inc. Deriv. Litig. (Apr. 13, 2026), the Court of Chancery granted Tesla, Inc.’s motion to dismiss derivative claims brought by Tesla’s stockholders against the company’s directors (including Elon Musk, the principal executive officer) for breaches of fiduciary duty and other misconduct. Vice Chancellor Bonnie W. David held that Tesla’s newly adopted forum selection bylaw, which designated Texas as the exclusive forum for derivative claims, required adjudication of the claims in Texas—although the bylaw was adopted when the company reincorporated from Delaware to Texas, which was after the alleged misconduct occurred and the claims had been asserted in Delaware.

The plaintiffs claimed that the Tesla directors breached their fiduciary duties by using Tesla assets to benefit Musk’s other companies, xAI and Twitter (now, “X”), and that Musk sold company stock based on material nonpublic information. The alleged misconduct occurred while Tesla was a Delaware corporation. The plaintiffs filed suit in Delaware (as required by the company’s then forum selection bylaw), just before Tesla stockholders voted to approve the company’s reincorporation to Texas and the amendment of its bylaws.

The court stressed that stockholders have no vested right to litigate in a particular forum, even for claims arising from past conduct—because their contractual relationship with the company is subject to change through amendment of the charter and bylaws. The court also emphasized that the Texas forum selection bylaw was publicly announced before the plaintiffs initiated litigation and that the bylaw became effective “just days later, before defendants entered appearances such that no meaningful litigation occurred between filing [of the litigation] and the bylaw’s adoption.”

The court stated that:

• forum selection bylaws are presumptively valid and should be enforced “unless it is clearly shown that enforcement would be unreasonable and unjust or that that the clause is invalid for such reasons as fraud and overreaching”;
• venue need not be determined solely on the basis of the timing of the filing of the action and courts sometimes look to later points in time (such as when a defendant appears or when a movant seeks transfer);
• under settled Delaware law, forum selection bylaws can apply retroactively to claims that arise from conduct that occurred prior to the bylaw’s adoption;
• it was not inequitable to enforce Texas jurisdiction as Tesla’s stockholders had approved the reincorporation to Texas and the amended bylaws; and
• the plaintiffs had not raised “a legitimate question regarding the integrity or competency” of Texas courts—and the court would not “second-guess” the Tesla stockholders’ chosen forum “by purporting to weigh the advantages and disadvantages of Texas law and procedure relative to [Delaware’s].”

Kelly Roofing—Chancery Provides a Drafting Lesson for Forum Selection Provisions.

In Kelly Roofing Holdings, LLC v. Flores (June 4, 2026), the Court of Chancery addressed whether a forum selection provision in an asset purchase agreement merely permitted, or instead required, actions arising out of the agreement to be instituted in Delaware. The provision stated that any legal actions arising out of the agreement “may be instituted” in Delaware federal or state court, and that each party “irrevocably submits to the exclusive jurisdiction of such courts in any such” action. Vice Chancellor Bonnie W. David held that, notwithstanding the “may be instituted” phrase, the provision was mandatory given the phrase indicating submission to the “exclusive jurisdiction” of Delaware. This interpretation, the court reasoned, gave meaning to all of the words of the provision. The court also noted that several other courts, interpreting almost identical provisions, have concluded that the provisions were mandatory. Clearly, better drafting, to ensure a mandatory forum selection provision, would be to provide that any action arising out of the agreement must (rather than “may”) be instituted in Delaware.