To "Blue Pencil" a Non-Compete — What Does That Mean?
Some people worry about the drafting of non-competes more than
others. One reason for this is probably that the people who are more relaxed
about how the provisions are drafted are in jurisdictions that have the safety net
of local courts that will reform or “blue pencil” provisions that are found to
be overly broad. If that’s the case, you might be tempted to ask for a little
more protection than you need. But if you are a business that has employees in
multiple jurisdictions (whether different U.S. states or different countries),
you need to pay closer attention because the way the courts deal with this
issue can be very different and could result in an all-or-nothing decision on
restrictive covenants that your business is relying on.
A good reminder of how the drafting of non-competes is not a “one
size fits all” process comes from the UK, where a recent UK Supreme Court decision
looked at the approach of UK courts in “blue pencilling” overly broad
post-termination restrictive covenants on employees. In that case (Tillman v
Egon Zehnder Ltd), the Supreme
court confirmed that UK courts should take a narrow approach in applying the
blue pencil test to unreasonably restrictive covenants — i.e., a
court may delete specific words (but, importantly, it will not add extra or
alternative words) and, if the remaining terms are reasonable, are still
supported by consideration and the deletions do not cause material changes in
the overall effect of the covenants, then the court will enforce the covenants.
But if this narrow blue-pencilling is not possible and doesn’t result in an
enforceable provision after the deletions have been applied, the employer might
be out of luck and the entire restriction could be held to be void and
The takeaway is that you should make sure you understand the
different approaches of the local courts when drafting such covenants for your
national and international employees. It might be okay in Texas to include an
18-month non-compete in the expectation that a Texas court could reduce it to
six or 12 months if it decides 18 months is too long, but the UK application of
the blue pencil test doesn’t work this way and asking for too much could mean
that your non-compete won’t be worth the paper it’s written on.
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