In my October 12, 2016 blog posting, I discussed how C&S Energy Services, Ltd. v. McCoy demonstrated that courts in Texas will enforce non-competition agreements that are reasonably limited in scope and duration.  A decision in a subsequent case, Cameron International Corp. v. Abbiss, pending in the Southern District of Texas (Atlas, J.) addresses the opposite situation, that is, where a non-competition agreement goes too far by being unreasonable in its reach.

The Cameron case, like C&S Energy Services, involved several non-competition agreements that were signed in connection with stock awards made to its employee, Abbiss.  Under those agreements, Cameron argued that Abbiss was prohibited from working anywhere in the Middle East, although Abbiss’ job responsibilities at Cameron had been confined to Oman and Yemen.  The Court rejected Cameron’s argument, holding that, as a matter of law, the restrictive covenants were overbroad as written.  The Court then applied what is typically referred to as the “blue pencil” doctrine.  Under that doctrine, in its purest form, a court may strike the offending language or, in its broadest form, reform the language.  In that regard, the Court enforced the covenant but only as to Yemen and Oman.  The Court also held that the restrictive covenant could not be justified as necessary to protect Cameron’s trade secrets.  The potentially confidential materials to which Abbiss had been exposed in his last two years with Cameron “were not confidential and/are stale,” according to the Court.

The blue pencil doctrine is not without controversy.  Some argue that the doctrine encourages employers to draw restrictive covenants as broadly as possible, knowing that if it is found to be overly broad, the courts will simply narrow the restrictions.  They argue, instead, that the courts should discourage such behavior by employing the “red pencil doctrine.”  Under the red pencil doctrine, the court can throw out the entire covenant not to compete if it is overbroad.  A May 2016 report issued by the White House urges that states adopt the red pencil doctrine in order to give employers an incentive to draft enforceable contracts.  In any event, if your jurisdiction follows the blue pencil doctrine, in drafting a non-competition agreement it is safest to identify discrete sub-territories to be affected rather than broad regional territorial restrictions.  In the same vein, the duration should be a realistic estimate of the time that the restraint is necessary.