Federal Court Finds Choice of Law that Permits Blue Penciling Does Not Violate Virginia Public Policy
By Paul Kennedy
Non-compete restrictions are creations of state law, which can sometimes vary on key aspects of contract formation and enforceability. One of those aspects is the extent to which states will reform or "blue pencil" the language of the restrictions. In many states a court will rewrite the terms of the restrictions to make them reasonable, thus fulfilling the parties' contractual intent. Courts in other states refuse to tamper with a restriction's language, requiring the non-competes to rise or fall on their literal terms.
One means of avoiding state-specific nuances that might otherwise threaten enforceability is a choice-of-law provision that designates the law of an enforcement-friendly jurisdiction to apply to the agreement's interpretation. While states often honor the contracting parties' intent to apply another state's law, a potential problem arises when the chosen state's law violates a fundamental public policy of the state where enforcement is sought. To that point, the Restatement (Second) of Conflict of Laws, Section 18, provides that parties' choice of law will not apply if "application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue." Hence, in a lawsuit brought outside a home jurisdiction, one argument to avoid enforceability of a non-compete is that the chosen law violates the policy of the forum state.