An Argument for Restricting the Blue Pencil Doctrine

Abstract

When faced with an unreasonable noncompetition agreement, a court faces a choice. In some states, a court may simply refuse to enforce such an agreement. In other states, however, a court may use a legal doctrine called the blue pencil doctrine. Under the blue pencil doctrine, courts are permitted to cross out overbroad provisions that make a noncompetition agreement unenforceable. The blue pencil doctrine gives courts the authority to either (1) strike unreasonable clauses from a noncompetition agreement, leaving the rest to be enforced or (2) modify the agreement to reflect the terms that the parties could have—and probably should have—agreed to. In recent years, a number of courts have criticized the continued use of the blue pencil doctrine, noting that it incentivizes employer overreach. In 2015 and 2016, two state Supreme Courts explicitly rejected the use of the doctrine. These and other courts have noted the potential for harm to employees, employers, and the judicial system as a whole. Despite this critique, however, the doctrine survives, buoyed by courts eager to rescue employers from their overzealous drafting. Even worse, some state legislatures mandate the use of the blue pencil doctrine. In these states, legislatures have proved willing to encroach on judicial independence and discretion. These legislatures require courts to modify unreasonable agreements so as to make them reasonable. As I will discuss below, the blue pencil doctrine harms employees, employers, and ultimately, society as a whole. Use of the blue pencil doctrine upsets a balance in the system. Courts already use a test to determine enforceability and that balancing test is designed to recognize an employer’s interest in retention, while at the same time, encouraging employers to set reasonable restrictions. Reasonable restrictions prevent unfair competition while protecting employee mobility. Use of the blue pencil doctrine frees employers from the need to make difficult decisions, knowing they may rely on the court system to correct any contracting mistakes. In the first part of this article, I review the peculiar nature of the noncompetition agreement. The noncompetition agreement exists as a unique contractual agreement, one that is subject to requirements that go beyond that of an ordinary employment agreement. Next, I examine the blue pencil doctrine, a legal device that permits a court to disregard the express language of the agreement and modify the terms to make the agreement reasonable. The blue pencil doctrine permits a court to use its equitable powers to impose terms that neither employee nor employer agreed to. In the final section of the paper I review the many reasons that some courts have rejected the use of the blue pencil. I then conclude with the multiple reasons to restrict the use of the blue pencil doctrine.