Wyoming Supreme Court Eliminates the Blue Pencil Rule for Noncompete Agreements

On February 25, 2022, the Wyoming Supreme Court issued a decision prohibiting courts from revising, or “blue penciling,” noncompete agreements to be reasonable and enforceable under the law. The decision overrules the Wyoming Supreme Court’s prior holdings on the issue and changes the landscape for employers drafting and enforcing Wyoming noncompete agreements.

In Hassler v. Circle C Resources, the Wyoming Supreme Court overruled Hopper v. All Pet Animal Clinic, Inc., which adopted the “liberal blue pencil rule” and authorized courts to narrow the terms of noncompete agreements to render them enforceable under Wyoming law. In overruling Hopper, the supreme court noted that public policy and “established black letter rules of contract interpretation” supported its decision to prohibit employers from requesting that the court revise noncompetes that are otherwise unenforceable.

Background

Circle C Resources, Charlene Hassler’s employer, sought to enforce the noncompete aspects of its “Confidentiality and Noncompetition Agreement.” In relevant part, the noncompete restricted Hassler from competing with the employer for “24 months after” the end of her employment “in any geographic area in which [the] employer markets or has marketed its services during the year preceding separation from employment.”

During her employment, Hassler was a certified nursing assistant providing home health services to a nonverbal client who required full-time habilitation care. In 2017, the client’s legal guardian became dissatisfied with Circle C Resources and switched to a new provider. However, Hassler continued to provide services to the client and was paid significantly more under the new provider arrangement.

Circle C Resources filed suit, seeking damages for breach of its noncompete agreement with Hassler. Hassler responded that the noncompete agreement was unenforceable and void under public policy. The trial court modified the geographic scope of the noncompete agreement to be limited to two specific counties and cut the duration to twelve months. Finding this blue penciled version of the agreement reasonable, the trial court granted summary judgment in favor of Circle C Resources and awarded $94,742.10 in lost profits.

Reversal on Appeal

On appeal, the Wyoming Supreme Court reviewed the public policy rationale and black letter law principles governing the interpretation and enforcement of noncompete agreements. To be enforceable, a Wyoming noncompete agreement must be (1) in writing; (2) part of a contract of employment; (3) based on reasonable consideration; (4) reasonable in duration and geographical limitations; and (5) not against public policy. Wyoming, like most states, requires an employer seeking to enforce a noncompete agreement to establish that the “restraint on the employee’s employment options is necessary to protect the employer’s legitimate business interests.”

While the Hassler decision does not disturb this bedrock principle of Wyoming noncompete law, the Wyoming Supreme Court took issue with the use of the blue pencil rule to narrow Hassler’s noncompete to ensure enforceability. In reversing the trial court’s grant of summary judgment, the supreme court acknowledged the “blue pencil rule was intended to be a tool to prevent former employees from unfairly competing with employers who had provided them valuable information and training and to promote certainty in the business environment.” However, the court found, when applied, “the [blue pencil] rule places an unfair burden on employees and creates uncertainty in business relationships.” Because Hassler’s noncompete agreement was determined to be unreasonable on its face, the Wyoming Supreme Court found it void and in violation of public policy. Rejecting the “blue pencil” concept as untenable, the supreme court ruled Hassler was entitled to judgment in her favor.

Key Takeaways

The Hassler decision and the elimination of the blue pencil rule highlight the importance of thoroughly evaluating Wyoming noncompete agreements during the drafting and negotiation process. Employers may want to scrutinize their existing and proposed noncompete provisions to evaluate whether they are “reasonable.” If the noncompete restrictions appear overly burdensome or overly broad, employers may want to consider revising the restrictions to avoid the risk of having noncompete provisions deemed void, thereby removing all noncompetion protections.

Finally, the Hassler opinion may not be the final word on noncompete agreements in Wyoming. Recent legislative efforts have attempted to institute a general ban on noncompete agreements in Wyoming. House Bill No. HB0038 sought to invalidate any contract that restrained an individual from engaging in a lawful profession, trade, or business, with certain exceptions. The bill failed in the Wyoming House of Representatives on February 18, 2022, but could return in the next legislative session.