Key Takeaways

  • The blue pencil provision allows courts to remove unenforceable parts of a contract while leaving the rest intact.
  • Jurisdictions differ in how they apply the blue pencil rule—some strictly strike language, others allow modification.
  • The rule is most often applied to non-compete and restrictive covenant clauses.
  • The blue pencil provision cannot be used to rewrite or add terms to a contract.
  • Enforcement depends on factors like contract divisibility, public policy, and the reasonableness of the clause in question.

What is a blue pencil rule? A contract is an agreement between two or more individuals or parties to perform specific acts, creating a legal obligation for all involved to perform the specified duties. However, a party may be faced with a situation where part of the contract even though legal and valid, is unenforceable.

In such situations, the dilemma is whether to deem the entire contract invalid or to discard only the unenforceable parts. This decision is made through a blue pencil rule, where the judicial system decides whether to invalidate the entire contract or only the unenforceable parts. The below write-up will help understand the intricacies governing the rule.

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.

In situations where the blue pencil rule is applied, the unenforceable or offending parts of the contract are invalidated either by deleting them or striking them off with a blue pencil by a court. However, recently numerous courts have discarded the blue pencil rule in favor of reasonableness, that allows courts to examine, deliberate and determine the restrictions in the contract, depending upon the available evidence and prevailing situation.

The way in which reasonableness differs from the blue pencil rule is through the extent and manner of modifications allowed in the contract.

Blue Pencil Provision vs. Red Pencil Doctrine

The blue pencil provision is frequently contrasted with the red pencil and purple pencil doctrines:

  • Blue Pencil Rule: Courts may strike through unenforceable portions of a contract (like with a blue pencil), but cannot modify or add new language.
  • Red Pencil Rule: Under this stricter approach, if any part of a restrictive covenant is unenforceable, the entire clause is voided.
  • Purple Pencil Rule (or Equitable Reformation): Courts have greater discretion to modify unreasonable terms to make them enforceable, rewriting language as needed.

Understanding which rule applies can significantly impact contract enforceability depending on the state. For example, Ohio historically allows some judicial modification under the blue pencil rule but not full reformation as permitted in equitable reformation states.

A Quick State-By-State Guide on the Blue Pencil Rule

As the blue pencil rule is not a complete law it is subject to numerous variations under multiple jurisdictions. 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.
  • In Arizona, Indiana, North Carolina, South Carolina, and Oklahoma, courts will only reform the covenants that are activity restraints or non-solicitation covenants.
  • In Alabama, Alaska, Colorado, Connecticut, Delaware, Illinois, Iowa, Kansas, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Vermont, Washington, West Virginia, and Wyoming, courts will only reform the equitably parts of the covenant
  • In Idaho, Florida, and Texas, the courts are bound to reform covenants.
  • In California, Montana, and North Dakota, the blue pencil rule is not applicable.
  • In District of Columbia, Louisiana, Maryland, Hawaii, New Mexico, Rhode Island, South Dakota, and Utah, the approach to the blue pencil covenant is unclear.

Factors Courts Consider When Applying the Blue Pencil Provision

When deciding whether to enforce a blue pencil provision, courts may evaluate several key factors:

  • Severability: Whether the unenforceable term can be cleanly removed without altering the core meaning of the contract.
  • Overbreadth: How broad or unreasonable the term is in geographic scope, time, or business restrictions.
  • Good Faith: Whether the employer or drafting party deliberately overreached.
  • Public Policy: If enforcing the clause—even in part—would contradict public interest, such as restricting competition or employment rights.
  • Reasonableness: Whether the remaining provisions are fair and protect legitimate business interests.

Each of these factors contributes to how a court may apply or limit the scope of the blue pencil rule in practice.

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. It has been recently clarified by the Indiana Court of Appeals that the blue pencil approach cannot be used in case of a non-compete provision that is expressed as an indiscrete whole, where it is difficult to modify or separate the terms without altering the meaning of the clause.

In situations where the non-compete is reasonably divisible, a court may apply the blue pencil rule by striking out an unacceptable clause and enforcing the acceptable and enforceable clauses. However, a court is only allowed to strike out the unreasonable portions but not allowed to add or modify any part of the contract.

Real-World Examples of the Blue Pencil Provision in Action

Here are practical examples of how the blue pencil rule has been applied:

  • Employment Non-Compete Clause: A non-compete agreement that prohibited an employee from working in any related industry nationwide for five years was deemed too broad. The court struck the nationwide scope and limited it to one year and a specific region where the employer operated.
  • Non-Solicitation Agreement: In a case where a non-solicitation clause attempted to prevent all contact with former clients indefinitely, the court removed the indefinite time period but enforced a two-year limitation instead.
  • Confidentiality Clause: When a confidentiality agreement lacked a time limit, a court may choose to strike the entire clause if the rest of the agreement can stand alone.

These examples demonstrate how courts aim to preserve contract enforceability while protecting parties from overly harsh restrictions.

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. 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:

  • The unenforceable part can be removed without the need to modify.
  • The remaining part is supported by adequate consideration.
  • The removal of the unenforceable part does not change the character of the contract.

Drafting Tips to Ensure Enforceability of Blue Pencil Provisions

To increase the likelihood that a blue pencil provision will be upheld and effectively applied, consider the following best practices:

  • Use Clear, Divisible Clauses: Write restrictive covenants in a modular way so that each part can stand independently.
  • Include a Severability Clause: Explicitly state that any invalid portion of the agreement can be severed without affecting the rest.
  • Avoid Overreaching: Draft clauses that are tailored in scope, geography, and time to legitimate business interests.
  • Reference the Applicable Law: Indicate which state’s laws govern the contract, as the blue pencil rule varies by jurisdiction.
  • Avoid Reliance on Reformation Alone: Because courts may not always agree to modify clauses, contracts should be reasonably enforceable as written.

Taking these steps helps ensure the blue pencil rule can be applied effectively, reducing the risk of the entire agreement being voided.

Frequently Asked Questions

  1. What is a blue pencil provision in a contract?
    It is a clause that allows courts to remove unenforceable terms from a contract while keeping the rest enforceable, without rewriting the language.
  2. Can a court modify a non-compete clause using the blue pencil rule?
    Yes, but only by striking out unenforceable parts—not by adding or rewriting terms unless the jurisdiction follows a more flexible approach like equitable reformation.
  3. What states follow the blue pencil rule?
    States like Indiana, North Carolina, and Oklahoma allow courts to apply the blue pencil rule to restrictive covenants, while others like California do not enforce such provisions.
  4. What's the difference between the blue pencil and red pencil doctrines?
    The blue pencil doctrine allows partial enforcement by removal, while the red pencil doctrine voids the entire clause if any part is unenforceable.
  5. How can I make a blue pencil provision more likely to be enforced?
    Use narrowly tailored, clearly divisible terms, and include a severability clause while avoiding overbroad restrictions.

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.