Many severance agreements contain a clause that reads something like: "If any provision of this agreement is found to be unenforceable, a court may modify it to the minimum extent necessary to make it enforceable." This is commonly called a "reformation" or "blue pencil clause," and many executives sign it without a second thought. Under North Carolina's strict blue pencil doctrine, that clause may not do what the company thinks it does. And for executives, that distinction matters enormously.
What North Carolina's blue pencil doctrine allows
North Carolina follows what courts call the "strict blue pencil doctrine." Under it, a court can only strike out language from a restrictive covenant (a non-compete, non-solicitation agreement, or similar provision) if the offending words can be deleted cleanly while leaving the remainder grammatically and legally intact using the language the parties actually wrote. In practice, this is a tough assignment for any court, and the practical result is that courts are usually reluctant to do it.
What a North Carolina court cannot do is rewrite the clause. It cannot insert new terms, narrow a stated time period or geographic area to something "more reasonable," or otherwise redraft the provision to save it. If striking the bad language would require adding words or restructuring the sentence, the court must void that provision entirely rather than fix it.
This was reaffirmed by the North Carolina Supreme Court in Beverage Systems of the Carolinas, LLC v. Associated Beverage Repair, LLC (2016). In that case, the trial court attempted to rewrite an overly broad geographic restriction down to a narrower area. The Supreme Court held that this was not blue penciling. It was judicial rewriting, which North Carolina courts are not permitted to do. The court struck the restrictive covenant entirely rather than salvage it. The court stated:
"What a North Carolina court cannot do is rewrite the clause. It cannot insert new terms, narrow a stated time period, or redraft the provision to save it. If fixing it requires adding words, the court must void it entirely."
Why this makes the reformation clause in your severance agreement problematic
A reformation clause in a severance agreement asks a court to do exactly what North Carolina's strict blue pencil doctrine prohibits: modify an invalid provision to the minimum extent necessary to make it enforceable. That is judicial rewriting, not mere deletion of offending words.
Under Beverage Systems and the strict blue pencil doctrine, if a provision in your severance agreement is overbroad, and making it enforceable requires the court to narrow or rewrite it rather than simply delete language, the reformation clause itself may be unenforceable as applied.
This is significant for executives. Companies include reformation clauses in severance agreements specifically to prevent overbroad restrictions from being voided entirely. Under North Carolina's strict doctrine, that protection probably will not work. An overbroad non-compete in your severance agreement may be just as vulnerable to complete invalidation as if no reformation clause existed at all.
What this means for restrictive covenants in severance agreements
This raises an interesting question: should the departing executive even bring this up with their employer? The answer, as with most things in law, is "it depends." The practical implication is that overbroad restrictive covenants in North Carolina severance agreements carry real risk for the companies that draft them and real opportunity for the executives who challenge them.
If a non-compete in your severance agreement prohibits you from working in your industry for an unreasonably broad geographic area or an unreasonably long duration, a North Carolina court applying the strict blue pencil doctrine cannot simply narrow that restriction to something reasonable. It must either find language to delete that leaves a sensible restriction intact or void the restriction entirely. Also, an employment contract cannot expand a court's authority beyond what the law permits.
Other provisions — releases, clawbacks, and NDAs
The blue pencil doctrine developed specifically in the context of restrictive covenants. Its application to other provisions commonly found in executive severance agreements (for example: releases of claims, clawback provisions, and non-disparagement terms) is less settled but follows a similar logic.
A release of claims that purports to waive rights that cannot legally be waived, such as certain whistleblower protections, is unenforceable to that extent. Whether a court will void only the offending language or the broader release depends heavily on severability analysis, not blanket reformation. A sweeping reformation clause does not resolve this uncertainty in the company's favor under North Carolina law.
Similarly, a clawback provision with an overbroad definition of "competitive activity" may be void in its entirety if the overbroad language cannot simply be struck while leaving a coherent restriction behind. The company cannot rely on a reformation clause to have a court install a narrower definition of its choosing.
What to do before you sign
If your severance agreement contains a reformation or blue pencil clause, the correct response is not to ignore it; it is to negotiate the underlying provisions so aggressively that the clause becomes irrelevant. A non-compete that is precisely scoped in geography, duration, and function does not need a court to reform it. A release that waives only what can lawfully be waived does not need judicial correction.
If you have already signed an agreement with a blue pencil clause — which can happen when you sign your initial employment agreement — do not fret: this actually may give you more negotiating power when you exit. This seems obvious, but the key in negotiating any severance agreement is finding things to negotiate over. Arguably unenforceable restrictive covenants, and your ability to negotiate a more legally enforceable covenant in exchange for additional consideration, can be a powerful tool.
North Carolina's strict blue pencil doctrine is a meaningful protection for executives facing overbroad severance restrictions. But it only helps you if you understand it and you have counsel who knows how to leverage it.
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Schedule a Confidential ConsultationAttorney advertising. This article is provided for informational and educational purposes only and does not constitute legal advice. No attorney-client relationship is created by reading this article. The legal analysis provided reflects general principles and is not a prediction of how any court would rule in a specific case. North Carolina law in this area continues to evolve. Do not act or refrain from acting on anything in this article without first consulting qualified legal counsel. Prior results do not guarantee a similar outcome.