The Indiana Supreme Court has reaffirmed its narrow interpretation of the “blue pencil” doctrine, holding that courts may not add terms to an overbroad non-solicitation or non-competition provision to make it reasonable even if the contract has a reformation clause.
As the court puts it: “This doctrine … is really just an eraser.” Continue reading
A recent federal decision from the Northern District of Illinois again illustrates the perils of drafting and attempting to enforce overbroad restrictive covenants. In the case of Medix Staffing Solutions, Inc. v. Dumrauf, 17-cv-6648, 2018 WL 1859039 (N.D.Ill. Apr. 17, 2018)(Ellis, J.), Medix, a pharmaceutical, biotech and medical device company, attempted to enforce a non-compete agreement against its former Director, Dumrauf, who had been responsible for its medical sales and recruiting strategies and who had left to work for a direct competitor, ProLink. Continue reading
Tip 1: Choose your choice of law wisely and FIRST.
- The law you choose to apply to a restrictive covenant is regularly outcome determinative in enforcement proceedings (e.g. Illinois’ rule on at-will employment as consideration, North Carolina’s rule on blue-penciling, Louisiana’s law on geographic scope, Florida’s statute on presumptive validity, etc.)
- And there are sometimes three or four states from which to pick:
- where the employer or seller is located (state of incorporation or principal place of business)
- where the employee or purchaser is located
- where the place of performance is located.
- So take the opportunity to pick the law that is most likely to do what your client already presumes will be done: your restrictive covenants will be enforced.
- Relatively speaking, Delaware –often the default state of incorporation– is a solid and defensible choice.
Sometimes a party to a contract gets greedy. As an example, sometimes a party seeks an onerous non-competition provision in a contract. Will a court enforce it? Will the court modify the agreement if it is too broad in some respect? Let’s see how this played out in a real case. Continue reading