Hue’s on first: overly broad noncompetes and the red pencil, blue pencil, purple pencil, and reformation rules

Drafting enforceable noncompete agreementss and other restrictive covenants is an art, not a science.

Even in jurisdictions where restrictive covenants are permitted,¹ they must satisfy certain requirements to be enforceable. Typically, they need to be reasonable in geographic scope, duration, and the activities they restrict, as well as necessary to protect a legitimate business interest.

Accordingly, restrictive covenants must strike a careful balance: They need to be broad enough to protect the employer’s legitimate business interests, but not so broad as to unreasonably limit the employee’s future employment opportunities.

When disputes arise, courts need to decide whether the specific covenants are enforceable. One of the most common issues is whether the restrictions are overly broad, and if so, how the court should handle them.

When confronted with overly broad restrictive covenants, courts follow one of four general approaches. Each method reflects a different legislative or judicial philosophy about contract enforcement and public policy.

Red pencil:

The “red pencil” approach (sometimes called the “all or nothing” approach) is the most employee-friendly. Courts applying this approach will typically refuse to “rescue” an over-reaching agreement and will, instead, invalidate it.

Under this approach, courts may invalidate the entire agreement if it lacks a carefully drafted severability (or “savings”) clause. Worse for employers, some courts will strike the entire agreement even if it includes such a clause.

This approach reflects a strict adherence to the idea that parties must draft enforceable agreements at the outset.

Consider this hypothetical noncompete for a salesperson whose territory is Massachusetts and Vermont:

For two years following the end of employment, employee will not engage in sales, marketing, or research and development activities in connection with competitive products on behalf of a competitor anywhere in the United States, including New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont).

Because the clause covers more than is required, a court applying the red pencil rule would invalidate it completely.

Blue pencil:

The “blue pencil” approach is somewhat more forgiving. Courts may strike overly broad language but enforce the remaining portions, provided what’s left is reasonable and enforceable.

As the court in Hamrick v. Kelly, 392 S.E.2d 518, 519 (Ga. 1990) explained, “The ‘blue pencil’ marks, but it does not write.”

Using the same hypothetical, a court employing the blue pencil approach might edit the agreement as follows:

For two years following the end of employment, employee will not engage in sales, marketing, or research and development activities in connection with competitive products on behalf of a competitor anywhere in the United States, including New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont).

If the court determines that, as modified, the restriction is reasonable, it will enforce it. However, if the employee’s territory had been New York, the agreement would still be overly broad because there is no way to limit it to New York by just crossing out the language.

Reformation:

The “reformation” approach (sometimes called “judicial modification,” the “rule of reasonableness,” or other names) allows a court to revise language to make it enforceable.

Considering the hypothetical above (where the employee’s territory is New York), the court can change the language as follows:

For two years following the end of employment, employee will not engage in sales, marketing, or research and development activities in connection with competitive products on behalf of a competitor anywhere in the United States, including New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) New York.

As reformed, the language has been sufficiently narrowed to be enforceable (assuming it satisfies all other applicable requirements).

Similarly, if the state has a one-year maximum duration for a noncompete, the court could change “two years” to “one year,” and then enforce the agreement as revised.

Reformation reflects an effort to ensure the parties’ original contractual intentions are carried out to the greatest extent permitted by law.

The downside of the reformation approach is that it can encourage overly broad drafting. Some states address this by imposing consequences, such as limiting the employer’s remedies or awarding attorneys’ fees to the employee.

Note that some courts (mistakenly) refer to this as “blue penciling,” but true reformation involves adding or changing words, not merely deleting them.

Purple pencil: 

The “purple pencil” approach is a made-up term for the reformation approach with an additional requirement of good faith by the drafter. If good faith is lacking, the approach reverts to the red pencil rule. The term was coined during the decade-long Massachusetts noncompete legislative process. I had suggested the approach in early versions of the bill, and a state senator (Dan Wolf) gave it a name. Specifically, confusing reformation with the blue pencil approach (as many people do), the senator mixed the colors (blue and red) and came up with purple, hence “purple pencil.”

This approach reflects the goals of reformation, while discouraging aggressive drafting. It balances fairness with deterrence, penalizing employers who deliberately overreach while protecting the legitimate business interests of those who don’t.

The term “purple pencil” has not, as far as I know, been adopted by anyone other than commentators. Nevertheless, courts in reformation states frequently apply its underlying principle when faced with unreasonably broad agreements. That said, some states legislatively mandate reformation, arguably taking this discretion out of the hands of the court.

Considering the same hypothetical above, a court might conclude that the employer did not act in good faith by defining an excessively broad territory, given that the employee’s work was limited to New York. Even if not, if the state explicitly prohibits noncompete agreements exceeding one year, the court may view such a clear violation of this bright-line rule as additional evidence of bad-faith drafting.

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Firm resources: 

We know how hard it is to keep up with the ever-changing laws and requirements around the country for how you can protect your trade secrets, customer goodwill, and the integrity of your workforce. To help, we have created the resources below (available for free). Each chart is regularly updated to reflect the latest developments. 

	50-State Noncompete Law Chart, the first of its kind and regularly updated (downloadable PDF) (to be updated for the new exemptions in Illinois and Pennsylvania)50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF)
	Chart of Noncompete “Low-Wage” Thresholds and Criteria (downloadable)
	Notice requirements summary chart, providing details for each of the 8 states (plus D.C.) that has notice requirements related to noncompetes (downloadable PDF)
	“Changing Trade Secrets | Noncompete Laws” (dedicated blog page) now provides a current detailed summary of the changing landscape of trade secret laws and noncompete laws around the country, state by state and at the federal level
	Trade secret and other legitimate business interest protection plan strategy and checklist

We hope you find all of these resources useful. More will be coming.

And please note, we are grateful for all of the input we’ve received over the years. We welcome any suggestions for improvements that you may be willing to share.