18 Aug North Carolina Court of Appeals Orders “Blue Penciling” of Non-Compete
In a decision issued on August 5, 2014, the North Carolina Court of Appeals reversed a trial court ruling that struck down a non-compete as overly broad and unenforceable. The case, Beverage Systems of the Carolinas, LLC v. Associated Beverage Repair, LLC, et al., involved a non-compete in connection with the sale of a business. Even though the Court agreed that the geographic scope of the non-compete was unreasonable, it found that the trial court should have revised the restrictions to make them enforceable, as the parties agreed it could.
The non-compete in Beverage Systems included language stating that if a court found any of the restrictions to be unreasonable, the court should revise those restrictions and substitute the maximum period, scope or geographic area that would be reasonable and permitted by law. Even though North Carolina follows a strict “blue pencil” doctrine that “severely limits” what a court can do to modify the language of an unenforceable covenant not to compete, the Court noted that the parties’ express authorization for a court to revise the language took the agreement outside that general rule. Given that, the case was sent back down with instructions for the trial court to revise the geographic area covered by the non-compete to include only those areas necessary to reasonably protect the plaintiff’s business interests.
The application of an express agreement to allow “blue penciling” had not been directly addressed by any North Carolina court previously. It should be noted, though, that the Beverage Systems Court emphasized that the case involved a non-compete connected to the sale of a business, rather than an employment agreement. North Carolina courts are much more lenient in enforcing non-competes in the sale of business context because of the assumption that the parties have relatively equal bargaining power. That is not always the case in the employment context, so it should not be assumed that similar language would necessarily be enforceable in that type of case.
At Parry & Tyndall, we have significant experience representing both plaintiffs and defendants in litigation involving non-compete provisions and other restrictive covenants in connection with employment contracts and the sale of a business. If you or your business have questions about the enforceability of a non-compete or other restrictive covenant, or if you need representation in connection with a potential dispute, please give us a call at 919.967.0504 to set up a free initial consultation.