Consider the following sample non-compete provision in an employment agreement for a salesperson:
Employee agrees not to work as a salesperson for any company that competes with Employer for a period of two years following Employee’s separation from employment in the following regions: Maryland, the District of Columbia, and Virginia.
Geographically overbroad? Could be. Too long? Possibly. What might a court do? Depending on the state, courts will generally take one of three approaches: (i) void the entire provision, (ii) strike out or “blue pencil” the unreasonable provisions (i.e., strike out “Virginia”), or (iii) reform – or even rewrite – the provision by substituting a reasonable term (i.e., six months rather than two years).
Maryland generally is presumed to follow the blue pencil approach. But Maryland’s appellate courts haven’t addressed the question since 1991. After 24 years of judicial radio silence, you might think that means that this a “settled” area of law. Not necessarily.
In Holloway v. Faw, Casson & Co., 78 Md. App. 205 (1989), the trial court reduced a non-competition agreement of a former partner in an accounting firm from five to three years. In affirming, the Court of Special Appeals, Maryland’s intermediate appellate court, adopted what is called a “flexible” approach to blue penciling. This allows courts to modify the express terms of the contract “so as to align the reasonable expectations of the parties to the reasonable expectations of the law, so long as it is fair to do so.” This approach is “flexible” in that it goes beyond the traditional blue pencil doctrine, under which a court may strike only the offending language if it is neatly severable. When Maryland’s highest court, the Court of Appeals, affirmed Holloway, it did so without either endorsing the “flexible” blue pencil approach or expressly adopting it as the law in Maryland.
Shortly thereafter, the Court of Special Appeals considered blue penciling again in Fowler v. Printers II, Inc., 89 Md. App. 448 (1991). In Fowler, the court allowed the “excision of offending contractual language without supplementation or rearrangement.” This seemed like a traditional (as opposed to flexible) blue pencil approach. Fowler did not go to the Court of Appeals.
And then, nothing – kind of. Since then, Maryland’s state appellate courts have not addressed the blue pencil doctrine. Why do I say “kind of”? Because Maryland’s federal court has developed its own line of case law adopting the traditional blue pencil approach. Yet these federal decisions do not bind Maryland courts.
What does this lack of clarity coupled with stale case law mean for enforcing non-competes in Maryland? Holloway seemingly allows courts to use a “flexible” blue pencil, enabling employers to defend non-competes aggressively. Overly restrictive provisions should be reformed or rewritten by the court to render them reasonable and enforceable.
With the current volume of litigation about non-competes, one would think the judicial radio silence about the traditional versus flexible blue pencil question in Maryland won’t last forever. When it ends, employers and employees – and trial judges – will benefit from greater guidance regarding the effect (if any) a contractual provision authorizing a court to reform a covenant not to compete will have in a Maryland trial court.