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To "Blue Pencil" a Non-Compete — What Does That Mean?

To "Blue Pencil" a Non-Compete — What Does That Mean? Background Decorative Image

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 unenforceable.

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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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.