Geoffrey Caesar, Solicitor

The ‘blue pencil’ is a term that refers to a legal doctrine that allows courts to modify or sever parts of a contract that are unreasonable or unenforceable while leaving the rest of the agreement intact. 

The principle is commonly applied to covenants not to compete, which are clauses that restrict an employee’s ability to work for a competitor or start a competing business after leaving their employer. The doctrine is named after the act of editing written copy with a blue pencil.

The ‘blue pencil’ doctrine is only sometimes accepted or applied similarly across jurisdictions.

In some countries, such as the United States, courts may use the ‘blue pencil’ to strike out or rewrite unreasonable clauses in a covenant not to compete as long as the revised version reflects the parties’ original intention and does not create a new contract.

In other countries, such as Canada, courts may only use the ‘blue pencil’ to remove entire clauses or words that are severable from the rest of the contract without altering the meaning or effect of the remaining provisions.

Case law has established the ‘blue pencil’ doctrine in England and Wales. 

The principle was first recognised by the House of Lords in Nordenfelt v Maxim, Nordenfelt Guns and Ammunition Co (1894), where it was held that a covenant not to compete that was too wide in scope could be severed and enforced to the extent that it was reasonable. 

The doctrine was further developed in Rose & Frank Co v JR Crompton & Bros Ltd (1925), where it was used to strike out an unacceptable clause in a memorandum of understanding that appeared to exclude the jurisdiction of the courts.

The ‘blue pencil’ doctrine was recently applied by the Supreme Court in Tillman v Egon Zehnder Ltd (2019), where the court decided that a covenant not to compete that prevented an employee from being “interested” in any competing business was too broad and could be severed by removing the word “interested”. The Court also clarified the test for severance, which requires that:

1. The unenforceable provision is capable of being removed without the necessity of adding to or modifying the wording of what remains. 
2. The remaining terms continue to be supported by adequate consideration.
3. The removal of the unenforceable provision does not so change the character of the contract that it becomes ‘not the sort of contract that the parties entered into at all’.

The Supreme Court in Tillman quoted with approval from the judgment of Bailhache J in Attwood v Lamont [1920] 2 KB 146, who said, at p. 55:

… the courts will sever in a proper case where the severance can be performed by a blue pencil but not otherwise. To give an illustration, a covenant ‘not to carry on business in Birmingham or within 100 miles’ may be severed so as to reduce the area to Birmingham, but a covenant ‘not to carry on business within 100 miles of Birmingham’ will not be severed so as to read ‘will not carry on business in Birmingham’. The distinction seems artificial, but is I think settled.

The above quote from Bailhache J gives a handy example of how the courts might apply the blue pencil doctrine in practice and the limits to its use.

Legal agreements that contain covenants not to compete may also include clauses that address the ‘blue pencil’ doctrine, such as severability clauses, which state that if any part of the contract is found to be invalid or unenforceable, it will not affect the validity or enforceability of the rest of the contract; or variation clauses, which allow the employer to vary or modify the covenant not to compete by changing circumstances or legal requirements.

Conclusion

I regularly advise on contract law, including the enforceability of restrictive covenants and other terms in employment contracts and contracts for services. If you need advice on restrictive covenants or any other clause in a contract to which you feel the blue pencil doctrine could be applied, please get in touch with me using the enquiry form on gcaesar.com.