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One of the most sensitive examples of the blue pencil test is in case of employment contracts, which allows striking out any unreasonable provisions in an employment contract. However, if the contract does not allow divisibility, then the entire contract stands void. Employers understand the basic principles of post-termination restrictions and ensure to provide substantial proof in case the exceptions in the contract are in the interest of the business. Employees understand that post-termination restrictions are much wider than what can be enforceable and thus some restrictions are simply ignored.
In such instances, a court may apply the blue pencil rule to modify post-termination restrictions to make them enforceable to the departing employee. However, the court is banned from redrafting or rewriting any clause of a contract. There is an exception to the post-termination restrictions of blue pencil rule where a contract even when containing unenforceable clauses remains effective if:.
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If you need help with the blue pencil rule, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb. Blue Pencil Rule: Everything You Need To Know With a blue pencil rule the judicial system decides whether to invalidate an entire contract or only the unenforceable parts. A Legal Definition of the Blue Pencil Rule A blue pencil rule is a judicial standard that a governing body uses to decide whether to invalidate a contract or only the unenforceable or offending parts of the said contract.
Courts are allowed to alter and modify the unenforceable or unreasonable parts of a contract and make it reasonable under the prevailing law across the states as below: In Arkansas, Georgia, Nebraska, Virginia, and Wisconsin, courts will not reform the covenant.
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In Arizona, Indiana, North Carolina, South Carolina, and Oklahoma, courts will only reform the covenants that are activity restraints or non-solicitation covenants. In California, Montana, and North Dakota, the blue pencil rule is not applicable. The Application of the Blue Pencil Rule A court can apply the blue pencil rule in case of an overly broad non-compete contract that could be divided into two distinct parts, where one is reasonable and enforceable while the other is unenforceable and offensive.
Post Termination Restrictions Via the Blue Pencil Rule One of the most sensitive examples of the blue pencil test is in case of employment contracts, which allows striking out any unreasonable provisions in an employment contract.
There is an exception to the post-termination restrictions of blue pencil rule where a contract even when containing unenforceable clauses remains effective if: The unenforceable part can be removed without the need to modify. The remaining part is supported by adequate consideration.
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The removal of the unenforceable part does not change the character of the contract. Was this document helpful? Share it with your network!
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