In 1961, the North Carolina Supreme Court adopted the “strict blue pencil” doctrine for the interpretation of non-competition agreements. Under this rule, a court will enforce geographic and temporal limitations in a covenant-not-to-compete if they are reasonable. If they are not reasonable, then the court will enforce any “divisible” portion that is reasonable, striking through the unreasonable portions.
Here’s an example. A salesperson works for a company that sells products in North Carolina. She agrees in writing that, should she resign her employment, she will not engage in sales of competing products in North Carolina or South Carolina for three years. A court may find the restriction as to sales in North Carolina reasonable, but the restriction as to sales in South Carolina unreasonable. Under the strict blue pencil doctrine, a court can order blue pencils online and strike through the words “or South Carolina.” In that way, the non-competition agreement can be enforced to the limit of what the parties expressly agreed to, to the extent those restrictions are reasonable.
Since 1961, many states have moved away from the strict blue pencil doctrine. Indeed, parties often include in their contracts an express authorization for the courts to re-write their non-competition agreements to be reasonable, as necessary.
That was precisely the case for the parties in Beverage Sys. of the Carolinas, LLC v. Associated Beverage Repair, LLC. The parties agreed to a non-competition agreement covering all of North Carolina and South Carolina. In practice, though, the parties’ respective markets left large portions of each state untouched. The trial court and appellate courts found this geographic restriction unreasonable. Couldn’t the courts just re-write the geographic scope to reflect the counties or regions in each state where the businesses had a presence?
Today, the Supreme Court answered that question with a unanimous “No.” Under the strict blue pencil doctrine, courts may “blue pencil” the agreement by striking unreasonable provisions, but do not have the power to “word process” the agreement by re-writing its terms. Our Supreme Court saw no reason to depart from its 55-year aversion for drafting contracts, even when, as here, the parties expressly agreed in their contract that a court could rewrite the terms. Instead, the Supreme Court “see[s] nothing but mischief in allowing such a procedure.”
The decision is a reversal of the Court of Appeals’ opinion, which would have remanded to the trial court to tweak the geographic scope term.
So, how can parties put the courts’ blue pencils to good use? Write your geographic terms as a series of concentric circles: “The parties agree not to compete for three years in (a) Wake County; (b) North Carolina counties located in the federal Eastern District; (c) the state of North Carolina; (d) the Carolinas; (e) the United States; (f) the world; (g) the solar system; (h) the universe; and (i) the multiverse.” Even North Carolina courts can sharpen those blue pencils and end that sentence whenever it starts becoming unreasonable, which is probably somewhere around the Local Group.