South Carolina Non-compete Lawyer

C ovenants not to compete (also referred to as “non-compete agreements”) are generally enforceable against an employee. However, they generally will not be if the prohibitions are more broad than are reasonably necessary to protect an employer’s interest. The numerous traps for drafting an enforceable covenant not to compete or non-compete agreement are numerous and subtle. The rules governing their enforceability also greatly vary from state to state. Contact a lawyer with our law firm to assist you in drafting or reviewing any such agreement in accordance with the laws of the applicable state.

Every business owner should have an informed understanding of non-compete agreements, non-solicitation clauses, confidentiality agreements, and other restrictive covenants under South Carolina law and federal law. To request a consultation, click here. If you are in need of a South Carolina non-compete or restrictive covenants lawyer, I provide a low-cost initial one-hour telephone consultation to prospective clients for only $45.00.

Why consult with a South Carolina non-compete or restrictive covenants lawyer?

Non-compete agreements and other restrictive covenants are contractual provisions that are commonly used in employment relationships to limit an employee’s ability to engage in certain activities post-employment, such as working for a competitor, starting a competing business, or disclosing proprietary information. These agreements are designed to protect businesses from unfair competition, theft of trade secrets, and the misuse of confidential information. However, such covenants must comply with legal standards to be enforceable.

I. Non-Compete Agreements Under South Carolina Law

A non-compete agreement is a clause in an employment contract that restricts an employee from working for a competitor or starting a competing business for a specific period and within a specific geographic area after leaving the company.

1. Enforceability of Non-Compete Agreements in South Carolina

Under South Carolina law, non-compete agreements are generally enforceable but are subject to strict scrutiny. South Carolina courts apply the reasonableness standard to determine whether a non-compete agreement is enforceable.

Legal Framework:

South Carolina Code of Laws § 40-1-70 – This section of South Carolina law limits the enforceability of certain non-compete agreements, particularly when they are deemed overly restrictive.

South Carolina case law (such as Collins v. Prudential-Bache Securities, 453 S.E.2d 873 (S.C. 1994)) sets forth key standards for determining the enforceability of non-compete clauses.

Reasonableness Test:
South Carolina courts typically analyze the following factors to determine if a non-compete is reasonable:

Duration: The length of time the restriction lasts. Courts usually find that restrictions of 6 months to 2 years may be reasonable, but longer durations will be scrutinized.

Geographic Scope: The geographic area in which the employee is restricted from working. The area must be limited to what is necessary to protect the employer’s legitimate business interests, such as areas where the employer does business.

Nature of the Work: The type of employment and the employee’s role in the business. Courts consider whether the employee had access to sensitive information, customer relationships, or trade secrets.

Legitimate Business Interest: Employers must demonstrate that the non-compete agreement is necessary to protect their legitimate business interests, such as trade secrets, confidential information, or goodwill.

2. Key Provisions in Non-Compete Agreements:

Duration: Common durations range from 6 months to 3 years, although this depends on the specific circumstances of the business and the employee’s role.

Geographic Scope: The restriction should be tailored to the area where the employer operates or where the employee had a direct impact.

Scope of Activity: The agreement should specify the type of work the employee is prohibited from engaging in (e.g., working for competitors, starting a competing business, or soliciting customers).

Consideration: There must be adequate consideration (such as employment or a promotion) to support the non-compete agreement.

3. Exceptions and Limitations:

Blue-Pencil Doctrine: South Carolina courts have adopted the blue-pencil doctrine, which allows them to modify or reform a non-compete agreement if the terms are overly broad but can be modified to make them reasonable.

Employment Status: Non-compete agreements are more likely to be enforceable if they apply to high-level employees (executives, key personnel) with access to confidential business information, as opposed to low-level employees.

4. Case Law:

In the case of South Carolina Steel, Inc. v. Thomas, 673 S.E.2d 417 (S.C. 2009), the court emphasized that non-compete clauses should not be enforced if they are unreasonable and unfair to the employee.

II. Non-Compete Agreements and Restrictive Covenants Under Federal Law

While non-compete agreements are governed by state law, there are federal standards and protections that can influence their enforceability, particularly when they intersect with antitrust laws and trade secret protections.

1. Federal Antitrust Laws and Non-Competes

Federal law can sometimes intervene in non-compete agreements, particularly if the agreement is deemed to violate antitrust laws. Non-compete agreements can be seen as restraints of trade, and as such, they must comply with the Sherman Act (15 U.S.C. §§ 1–7), which prohibits contracts that restrain competition.

Sherman Antitrust Act: Section 1 of the Sherman Act prohibits any agreement that unreasonably restrains trade. Non-compete agreements that unduly restrict an employee’s ability to find new employment could potentially violate federal antitrust law.

2. Federal Trade Secrets Protection

Under federal law, particularly the Defend Trade Secrets Act of 2016 (DTSA) (18 U.S.C. § 1836), employers are given federal protection over trade secrets and confidential information, which can also impact non-compete and confidentiality clauses.

DTSA: Employers can seek federal remedies for the misappropriation of trade secrets, and a non-compete agreement may be necessary to protect trade secrets. Employers may seek injunctive relief and damages if an employee violates the agreement by disclosing or using trade secrets after leaving the company.

Impact on Non-Competes: Federal law does not create specific enforceability standards for non-compete agreements, but a non-compete can be used in conjunction with trade secrets protection to prevent former employees from using confidential business information against the employer.

III. Other Restrictive Covenants

 

1. Non-Solicitation Agreements

Non-solicitation agreements prevent former employees from soliciting customers, clients, or employees of the employer for a specific period after employment ends. Unlike non-compete agreements, which prevent employees from working for competitors, non-solicitation clauses are often more likely to be enforced because they do not outright prohibit the employee from working.

South Carolina Enforcement: South Carolina courts will generally enforce non-solicitation clauses if they are reasonable in terms of duration, geographic scope, and the legitimate business interests they seek to protect.

Legal Framework:

South Carolina Code of Laws § 40-1-70 – This law applies to non-compete agreements, but courts will also analyze non-solicitation agreements under similar principles.

2. Confidentiality Agreements (Non-Disclosure Agreements or NDAs)

Confidentiality agreements or NDAs prevent employees from disclosing sensitive information that the employer considers proprietary, such as trade secrets, client lists, or business strategies. These agreements are typically enforceable and may complement non-compete agreements.

Legal Framework:

Defend Trade Secrets Act (DTSA) – Provides federal protection against the unauthorized use or disclosure of trade secrets.

South Carolina Law: South Carolina courts will enforce confidentiality agreements if the information is truly confidential and if the restrictions are reasonable.

Violations of confidentiality agreements can lead to civil lawsuits and may also give rise to trade secrets claims under the DTSA.

3. Non-Disclosure and Non-Compete Clauses in Franchise Agreements

In franchise agreements, non-compete clauses and non-disclosure agreements are often used to protect the franchisor’s business model and trade secrets. These clauses are generally enforceable as long as they meet the same reasonableness tests for duration and geographic scope as other restrictive covenants.

IV. Key Takeaways

Enforceability in South Carolina: Non-compete agreements in South Carolina are enforceable but are subject to strict scrutiny. Courts evaluate their reasonableness based on the nature of the business, the employee’s role, duration, geographic scope, and legitimate business interests.

Federal Law Considerations: Federal law, including the Sherman Act and the Defend Trade Secrets Act (DTSA), can impact non-compete agreements, particularly when it comes to protecting trade secrets and ensuring that agreements do not violate antitrust principles.

Reasonable Limitations: Non-compete, non-solicitation, and confidentiality agreements must be reasonable in scope, duration, and geographic limitations to be enforceable under South Carolina law and federal law.

Consideration: Non-compete agreements must be supported by adequate consideration, such as continued employment or a promotion.

Enforcement Mechanisms: Employers seeking to enforce restrictive covenants can file lawsuits in South Carolina state courts or federal courts (especially for trade secret claims). Courts may issue injunctive relief, order damages, or apply the blue-pencil doctrine to modify overly broad agreements.

References

South Carolina Code of Laws § 40-1-70
Sherman Antitrust Act (15 U.S.C. §§ 1–7)
Defend Trade Secrets Act of 2016 (DTSA) (18 U.S.C. § 1836)
Collins v. Prudential-Bache Securities, 453 S.E.2d 873 (S
.C. 1994)

 

Courts generally view restrictive covenants with disfavor, critically examine them, and construe them against the employer if determined to be overly broad, so employers must carefully draft and review these agreements.However, courts in most jurisdictions recognize the freedom of an employer and employee to enter into such covenants when reasonable and consistent with the interest of the public. I can assist you with all four types of covenants: (1) traditional covenants not to complete, (2) covenants not to solicit customers, (3) covenants not to solicit employees, and (4) covenants not to disclose trade secrets and/or confidential information.

Most states that enforce non-compete agreements have formed a “reasonableness test.” Under a “reasonableness test” a covenant not to compete will be generally enforced if it can be shown that the covenant (1) is necessary for the protection of the legitimate interests of the employer, (2) is reasonably limited with respect to time and place, (3) is not unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a livelihood, (4) is supported by valuable consideration, and (5) is reasonable from the standpoint of sound public policy.

Employers often substitute covenants not to solicit customers or clients—who were customers or clients at the time of termination or during a stated period before termination—for traditional covenants not to compete. Such a covenant may be more appropriate than the traditional covenant not to compete when, for example, the employee dealt with national accounts or where the employer has substantial investment in or revenue from then current customers or clients. Unlike traditional covenants not to complete, there is no geographic limitation on such covenants. However, some cases in some jurisdictions imply that employee only can be restrained from contacting customers or clients he or she had prior contact with.

Employers will generally want to prevent departing employees to solicit away other key employees of the company. Therefore, employers frequently include a covenant not to solicit employees—effective for a reasonable period, typically 1 to 2 years after departure—in their written agreements with employees.