Monday, May 13, 2013

You Can't Reverse Blue-Pencil a Non-Compete

By now, I hope readers of this blog would be aware that the title of this post simply reinforces the obvious.

For background, the "blue-pencil" rule is intended to allow a court to enforce the reasonable parts of non-competition agreements, while deleting those portions that render the covenant overbroad. Its cousin, the "equitable modification" rule gives a little more discretion to a trial court judge, such that he or she can make substantive changes to the clause (as opposed to deletions) when narrowing it up.

What neither rule allows is expansion of the covenant to include a broader range of competitive activity. Lawyers and clients need to understand, though, that judges are generalists and aren't as accustomed to examining this issues with the kind of depth that nerds like me are. So they make mistakes.

A perfect illustration comes from the Appellate Court of Illinois, which issued an opinion this week that addressed this reverse blue-penciling issue. The non-solicitation covenant at issue in that case was similar to what many provide: the employee (a physician) could not "solicit, divert or take away business or patronage" of the medical practice for three years following termination of employment.

The case, which is embedded below, is yet another primer on "How Not to Leave Your Employer" and follows the same basic fact pattern as I've written about on prior occasions. The trial court in Chicago issued a preliminary injunction which enforced the agreement and restrained the defendants (including one not bound to any non-compete) from "treating any current or former patients of" the medical practice.

This is more extensive than the terms of the non-solicitation covenant because "treating" is broader than the operative triggering language in the contract - "solicit, divert or take away." The Appellate Court held such an expansion of the terms was improper given the relatively clear language of the contract.

Counsel drafting non-solicitation covenants should always consider whether the terms are broad enough to include "passive" solicitation (that is, a client approaches the ex-employee) as opposed to mere "active" solicitation (affirmative efforts to lure clients away). Because it is almost impossible for an employer to assess objectively the difference between the two (it only knows the client has left), there are few business reasons why a non-solicitation covenant should be drafted to exclude passive solicitation.

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