Insight

Opinion

The Blue Pencil Test – ensure your covenants are sufficiently clear and unambiguous.


Covenants such as non-compete clauses can be unenforceable if they are too widely drafted. However, the court can sometimes strike out any offending parts so as to leave an enforceable undertaking (the “blue pencil” test).

In the Supreme Court’s first restrictive covenants case in over 100 years (Tillman v Egon Zehnder Ltd [2019] UKSC 32), a recruitment consultant wanted to leave and work for a competitor.

She had agreed to restrictive covenants and a dispute arose as to whether they were unenforceable, on the basis that they prevented her “being interested in” any competing business and were therefore too broad. The Court considered whether it could sever only that part of the clause by applying the blue pencil test, and held that it could.

The Court confirmed that the correct approach to the “blue pencil” test is that certain words can be deleted if:

  • after deletion, no additional words need be added;
  • there is adequate consideration for the remaining terms; and
  • by deletion, the character of the restriction is not changed to make it a different type of contract from the one the parties entered into.

 

Takeaway Point: Non-compete and non-solicit provisions will be of no effect if they are too broad. You should ensure that your lawyers have drafted them unambiguously and in such a way that if challenged, the blue pencil test can be used to dispense with only the parts that may go too far.

Reduce costs and save time

Legal advice, accelerated by technology.
Mattersmith Limited is a company incorporated in England and Wales with registered number 11320618, whose registered office is at 11 Telford Court, Morpeth, Northumberland, NE61 2DB, United Kingdom, and is a recognised body authorised and regulated by the Solicitors Regulation Authority with number 650058. © Mattersmith, 2021

Site by: Thinkfarm