Why Not Blue Pencil?
“Blue penciling” refers to the convention whereby a court may exercise its discretion to modify parts of a contract that violate public policy, and which are, therefore, void. In the employment context, the questions whether, when and how much blue-penciling is warranted come up most frequently when courts are asked to enforce restrictive covenants such as non-compete and nonsolicitation agreements.
A decision last year in the Colorado Court of Appeals, 23 LTD v. Herman, illuminates why some courts have retreated from “blue penciling.” 2019 Colo. App. 113, No. 18CA0950.
Ms. Herman Solicits a Customer
In the Colorado case, the company, 23 LTD, doing business as Bradsby Group, sued a former employee, Tracy Herman, for breach of non-compete and nonsolicitation sections of her employment agreement.
Herman had been hired by Bradsby as a legal recruiter. She had signed an employment agreement stating that she would not become for “twelve (12) months from the date of termination of employment … an owner, partner, investor, or shareholder in any entity that competes with Bradsby” within a restricted area. The restricted area was defined as any place within thirty miles of Bradsby’s principal place of business, which was located in downtown Denver. The agreement also included a nonsolicitation provision restricting Herman from contacting any person or entity who had had any contact with Bradsby during Herman’s last twelve months of employment with them.
At the conclusion of her employment with Bradsby, Herman formed her own company, obtaining and designating a mailing address for it at a location outside the restricted area. She later reached out to a former job applicant from her time at Bradsby to inquire whether anyone in the contact’s network might be interested in a position she was recruiting to fill. The contact had been previously offered a position with a law firm client of Bradsby’s but had turned it down. When Herman contacted him later, he asked whether that law firm job might still be open. Herman then communicated with the law firm. The contact was eventually hired by the law firm, and Herman collected a fee from the hiring firm.
A One Dollar Verdict
At trial, a jury decided that Herman had not violated the non-compete provisions of the agreement but that she had violated the nonsolicitation provision. The jury awarded damages to Bradsby of one dollar. However, the district court set aside that verdict because it found the nonsolicitation provision of the contract to be so broad as to be void and in violation of Colorado law. The district court also declined to “blue pencil” the nonsolicitation provision to make it enforceable.
Upon appeal, Bradsby argued that the district court erred and/or abused its discretion in declining to blue-pencil the nonsolicitation provision. Bradsby argued that the severability clause in its agreement obligated the district court to blue-pencil the agreement to conform to Colorado law.
Stating that “Colorado law provides little guidance as to when, and to what extent, trial courts may blue pencil unreasonable non-compete provisions,” the court of appeals considered case law from other jurisdictions.
In discussing its reasoning, the court of appeals pointed out that even though a contract may grant a court the authority to modify an overly broad non-compete agreement, doing so would essentially require the court to rewrite an unlawful contract.
No Blue Penciling
The court noted that other states’ courts had rejected the proposition that parties to a contract may delegate the responsibility to the court to draft language for them. “We are firmly convinced that parties are not entitled to make an agreement, as these litigants have tried to do, that they will be bound by whatever contract the courts may make for them at some time in the future.” Quoting Rector-Phillips-Morse, Inc. v. Vroman, 489 S.W.2d 1, 4 (Ark. 1973).
The court further explained that it is not itself a party to the contract. The parties “have no power or authority to enlist the court as their agent.” Thus, parties to a contract cannot “contractually obligate a court to blue pencil non-compete provisions that it determines to be unreasonable.”
“Fundamentally, it is the obligation of a party who has and wishes to protect, trade secrets to crafting contractual provisions that do so without violating the important public policies of [the] state. That responsibility does not fall on the shoulders of judges.” Citing Rector-Phillips-Morse, Inc. v. Vroman, 489 S.W.2d at 4; Bayly, Martin & Fay, Inc. v. Pickard, 780 P.2d 1168, 1175 (Okla. 1989).
Accordingly, the court of appeals held that “it is not the function of a court to write or rewrite contracts for parties to enable enforcement of a contract that, as written, violates the public policy of the state.” While a court may elect to blue pencil “an otherwise offensive restrictive covenant,” the trial court “has broad discretion whether and when to exercise that authority.”