Many states allow courts to take certain actions to “modify” restrictive covenants in employment agreements. This issue is a topic of hot debate in Georgia, as the voters will decide on November 2, 2010 whether to allow “blue penciling” in Georgia. Blue penciling, strictly defined, is the ability of a court to strike, excise, or cull, certain severable portions of an agreement so as to enforce the agreement solely to the extent it is reasonable. Other states allow (and may require) a court to alter the agreement, rewriting or reforming the agreement to make it enforceable to give effect to the parties’ intent.
Here is a break-down of how states handle “blue penciling” or modification of restrictive covenants. Of course, this is not intended to be a substitute for legal advice but a general guide.
As part of its efforts to codify its non-compete law, Georgia is seeking to allow “blue-penciling.” The statute defines “modification” as
the limitation of a restrictive covenant to render it reasonable in light of the circumstances in which it was made. Such term shall include
(A) Severing or removing that part of a restrictive covenant that would otherwise make the entire restrictive covenant unenforceable; and
(B) Enforcing the provisions of a restrictive covenant to the extent the provisions are reasonable.
O.C.G.A. sections 13-8-51(11)-(12). It does not allow for reformation and it does not allow a court to rewrite the contract. The National Employment Lawyers Association Georgia Affiliate has published an advertisement that suggests otherwise. The ad says that “Judges would be required to re-write the covenant as they see fit . . . ” However, in accordance with the definitions of “modification” and “modify,” “a court may modify a covenant that is otherwise void and unenforceable as long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties.” O.C.G.A. section 13-8-53(d) (emphasis added). The court is not required to do so.
Amendment One, which is on the ballot in November, only gives the general assembly the ability to empower courts to “limit the duration, geographic area, and scope of prohibited activities.” HR 178. Because “modification” under the statute is limited to severing or narrowing the covenant, and the general assembly would not be given the right to empower courts to reform or re-write restrictive covenants, there should be no legitimate concern about judicial modification in Georgia. Instead, Georgia would join many other states that employ “blue-penciling.”