Non-Competes, Blue Pencils and Red Pencils - Is This a Courtroom or a Classroom?

Dec. 13, 2017

Non-compete law is kind of an odd duck when it comes to enforcement. First, although it almost always involves intestate commence there is no uniform non-compete law. There is no federal statute or body of law governing how these things are supposed to be enforced in the typical employment context. Three states ban them outright. Sixteen states have statutes that provide parameters as to how they are to be enforced. The remaining states have a patchwork of judicial decisions that make up their respective enforcement schema.

One of the oddities of non-compete law is the equitable remedy of “reformation of contract.” Generally speaking, at common law, courts have the power to reframe written contracts to reflect accurately the intent of the parties to the agreement when the language of the contract does not accurately reflect that intent. The power of reformation applies to any contractual arrangement.

In non-compete-land, however, in those jurisdictions where reformation is recognized, courts have the power to re-write non-compete provisions that the Court deems overbroad or otherwise unenforceable, and to make the non-compete agreement enforceable under the law as the judge sees it. In other words, the judge has the power to do what the parties and/or their lawyers should have done in the first when the contract was prepared.

This type of reformation of non-compete agreements is recognized in many states, including Minnesota. Minnesota commonly refers to this power as the “blue pencil doctrine,” although, technically, the label is incorrect. In most jurisdictions that recognize the “blue pencil doctrine,” the court only has the power to strike unenforceable provisions from a contract, not to rewrite them.  The power of the court follows this traditional “blue pencil” rule is recognized by last count in 7 jurisdictions. Reformation power is recognized in about 2/3rds of the states.

Not all judges, however, will blue-pencil or reform a non-compete agreement that the judge deems overbroad. Sometimes, the judge will simply throw the non-compete provision out of an employment agreement, leaving the rest of the agreement intact. This is informally called an exercise of the “red pencil doctrine.” At least four jurisdictions expressly recognize a judge’s red-pencil power to the exclusion of the right to blue-pencil or reform an otherwise unenforceable non-compete agreement. In those jurisdictions there is no middle ground; the non-compete clause is either in or its out.                

Written By:
Bill Egan

Bill Egan is a Seasoned Employment Law Attorney backed by over 33 years of proven, veteran experience. He specializes in navigating businesses through conflict resolution in the workplace.

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