A ruling by a federal district court judge in the United States District Court for the Eastern District of Virginia may provide a basis to “blue pencil” noncompetition agreements in Virginia. ”Blue penciling” allows a judge to modify an overly-broad non-competition agreement by striking through the portions that violate Virginia law. Thus, in theory, the agreement would reflect the parties’ agreement minus the portions that do not conform to the law. So rather than courts grading on a pass/fail basis, they can award partial credit.
In Senture, LLC v. Dietrich, et al., 575 F. Supp.2d 724 (E.D. Va. 2008), Judge Doumar rejected a former employee’s argument that the application of Kentucky law to the non-competition agreement was contrary to Virginia public policy. In this case, the non-competition agreement included a Kentucky choice of law provision. Judge Doumar held that there was no public policy preventing the application of Kentucky law. Under the Senture ruling, it may be possible for an employer to adopt the law of a state other than Virginia—such as the law of a state which expressly permits “blue penciling” non-competition agreements.
It is well-known to practitioners in Virginia that the courts in the Commonwealth have taken an increasingly strict construction of non-competition agreements. Consequently, it has become more challenging for employers to enforce such agreements unless the non-compete is carefully tailored. Employers are also challenged because overly broad noncompete clauses are thrown out by the courts.
Although the Virginia Supreme Court has never expressly rejected the “blue pencil” doctrine, the Commonwealth’s courts have routinely refused to blue pencil non-competition agreements.
Although Judge Doumar’s decision did not deal directly with whether a Virginia court would apply another state’s “blue pencil” policy in the event the choice of law jurisdiction permits “blue penciling,” employers in Virginia may consider including a choice of law clause designating the application of another state’s law to their non-competes. Just remember, it is usually required that the parties have some relationship with the state designated in the choice of law provision. For companies that do business in multiple states, the Senture decision may all those companies to choose which state law to apply to their employee agreements.