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Colorado trial courts are not required to blue-pencil non-compete and non-solicit covenants

Even where an agreement says that covenants “shall be” blue-penciled (meaning, rewritten if determined to be unenforceable and narrowed to whatever the court rules would have been enforceable), a trial court in Colorado is not required to do so. In a recent decision, 23 LTD v. Herman, case no. 16CA1095 (Colo.App. 7/25/19), the Colorado Court of Appeals confirmed blue penciling is within a trial court judge’s discretion. The parties cannot, by way of mandatory language like “shall,” not only confer on the judge the authority to re-write their agreement but an obligation to do so.

Simply put, the court is not a party to the agreement, and the parties have no power or authority to enlist the court as their agent. Thus, parties to an employment or noncompete agreement cannot contractually obligate a court to blue pencil noncompete provisions that it determines are unreasonable.

The case is a strong reminder for employers not to over-reach when drafting covenants, non-competes or non-solicits. While a blue penciling clause may give the judge to make some changes like reducing the geographic or temporal reach of the covenant (how many miles/how many months), the parties should not expect a judge will be willing to make changes beyond that, or even of that nature. Whether to blue pencil at all is an issue for each judge.

Fundamentally, it is the obligation of a party who has, and wishes to protect, trade secrets to craft contractual provisions that do so without violating the important public policies of this state.[5] That responsibility does not fall on the shoulders of judges

California courts strike non-solicits

Two recent California decisions warrant immediate review by companies that might seek to enforce non-solicitation covenants. The two courts each struck covenants that prohibited former employees from soliciting the company’s employees. The first decision was announced by the California Court of Appeals, which summarized its analysis of the non-solicit at-issue, as follows:

Turning to the instant case, we independently conclude that the nonsolicitation of employee provision in the CNDA is void under section 16600. Indeed, the broadly worded provision prevents individual defendants, for a period of at least one year after termination of employment with AMN, from either “directly or indirectly” soliciting or recruiting, or causing others to solicit or induce, any employee of AMN. This provision clearly restrained individual defendants from practicing with Aya their chosen profession — recruiting travel nurses on 13-week assignments with AMN. (See Dowell, supra, 179 Cal.App.4th at p. 575 [finding a broadly worded nonsolicitation clause preventing employees from rendering any service to “any of the accounts, customers or clients with whom they had contact during their last 12 months of employment” void under section 16600]; D’Sa, supra, 85 Cal.App.4th at p. 930 [finding a provision in an employee confidentiality agreement was void under section 16600 because it prevented an employee from rendering “`services, directly or indirectly, for a period of one year after separation of employment with [employer] to any person or entity in connection with any [c]ompeting [p]roduct'”]; Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22 Cal.App.4th 853, 859 (Metro Traffic) [finding a broadly worded noncompetition provision void under section 16600 because it prevented an employee from working for a competitor for a period of one year after termination from the employer].)

As that quote suggests, the Court of Appeals noted that the non-solicit acted, for these individuals, who were recruiters, like a non-compete. If they could not solicit the company’s employees, the Court of Appeals reasoned, they could not compete, since recruiting was their business.

Would this analysis apply even where the individual was not a recruiter? It isn’t clear, but the second recent court decision suggests it might.

Employers should have their proprietary information agreements (and any other agreement containing covenants) reviewed by legal counsel, especially if California law may be implicated.

Source: AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., case no. No. D071924 (Cal.App. 11/1/18); Barker v. Insight Global, LLC, case no. 16-cv-07186-BLF (N.D.Cal. 1/11/19).