When a court modifies a contract by adding language or deleting language, it is often referred to as “blue penciling.” Different states have different rules on when and if a court can blue pencil an unenforceable contract. After a recent decision from the Colorado Court of Appeals 23 LTD v. Herman, 2019COA113 (July 25, 2019), don’t count on a Colorado court to blue pencil your unenforceable contracts. 23 LTD v. Herman disabuses us of the idea that a Colorado court must blue pencil an unenforceable contract or that parties can contractually agree to have a court blue pencil an unenforceable contract.
In 23 LTD v. Herman, a recruiting company sued a former employee for violating an employment agreement with both noncompete and non-solicitation provisions. At trial, the jury found that the former employee did not violate the noncompete provision but did violate the non-solicitation provision. The trial court set aside the jury’s verdict regarding the non-solicitation provision because the non-solicitation provision was unenforceable under Colorado law.
The former employer appealed, arguing that the employment agreement required the court to blue pencil the unenforceable non-solicitation agreement to make it otherwise enforceable under Colorado law. The former employer argued alternatively that, even if the parties did not agree to require blue penciling, the court was obligated to blue pencil the non-solicitation agreement to make it enforceable.
The court held that there is no obligation for Colorado courts to blue pencil unenforceable agreements. The court also held that parties cannot contractually obligate courts to blue pencil unenforceable agreements. The court reasoned that Colorado courts are not parties to private contracts and are not agents of the parties with any contracting authority. However, if a court determines that a contract or any of its provisions are unenforceable, a court has broad discretion in determining whether to blue pencil the contract, with or without the contractual consent of the parties.
The court also appeared to enforce a contractual “severability” provision, which the parties included in the employment agreement. Generally, “severability” provisions permit otherwise enforceable provisions to still be binding on the parties even if one clause is deemed unenforceable—the unenforceable provision is “severed” from the rest of the contract. In 23 LTD v. Herman, the fact that the non-solicitation provision was unenforceable did not void the entire employment agreement.
Businesses should take care to carefully draft their contract provisions so that they are enforceable under state law to avoid the need to have a court blue pencil or sever an otherwise invalid provision. For example, states’ laws vary on the enforceability of indemnity agreements. Businesses will want to take care to not draft overly broad indemnity agreements that violate state law because a state court might not rewrite the agreement for you or the state court could sever the entire indemnity provision from the rest of the contract, leaving your business with no indemnity protection at all. Part of your careful contract-drafting process should include knowing, in the first instance, which state’s law will apply by having a well-drafted choice-of-law provision.
If you have any questions or need further guidance on contract drafting, please contact one of Woods Aitken’s Construction Attorneys. For additional construction news, tips, and updates, we encourage you to view our Construction E-Brief archives.