South Carolina Intellectual Property Litigation

Intellectual Property & Litigation SC

Non-Compete Agreements for Employees and Businesses – Enforcement, OverUse and Abuse

  1. Does your company use non-compete agreements with any of its employees?
  2. Is your employment subject to a non-compete agreement?
  3. Have you bought or sold a business that involved a non-compete agreement?
  4. Are non-compete agreements enforceable in South Carolina?

Number 4 we can answer for you. The ANSWER is YES, but with quite a lot of qualifications and clarifications. For a non-compete to be enforceable in South Carolina as against an employee, there must be consideration, the employer must have a legitimate business interest to protect, and the restrictions must be reasonable with respect to the time limits, geographical restrictions, and the restrictions must be limited to protect the business’s interests. That was a mouthful, right?

The Rules Are Different for Business Sales Non-Competes

Guess what, the rules for non-compete agreements related to the sale of a business are different. That is right, the law is designed to protect an employee’s right to work and use his or her acquired skills, whereas, if a business owner sells his or her business and agrees to a non-compete, the terms of the agreement will likely be longer, e.g., up to 3 or even 5 years, and the likelihood it will be enforced is much greater.

Employment Agreement Non-Competes: Abuse and OverUse …

In practice, we find that many employers overdraft these non-compete agreements, leaving the employees thinking they will be kept out of work for 2 or 3 years if they leave their job and go to work for any company that may be considered a competitor! The law with respect to non-compete agreements will vary to some degree from state to state, so even if you work and live in South Carolina, your employment agreement could be governed by another’s state’s law, for example, if the company you work for is based in Louisiana. An exception to this rule is that the other state’s law may not be enforceable is it violates the “public policy” of the state of residence.

What does “public policy” mean? Good question. In one case, our Supreme Court held that an employment agreement under New Jersey law could not be “blue penciled” (i.e., re-written) by the court and enforced in South Carolina, even though the agreement purported to be subject to New Jersey law!

For example, Louisiana appears to allow a court to reduce the terms of a non-compete to make them enforceable, for example, to reduce the time period of enforcement from 2 years to one year if the court finds that one year was reasonable, but two years was too much. However, South Carolina does not allow this “blue penciling” (i.e., re-writing) of an employment agreement. The reasoning of not allowing the courts to use the “blue pencil,” is simple, namely that the court’s job is to enforce the parties’ agreements, not re-write them. By not allowing use of the blue pencil, the employer is bound to draft their non-compete agreements to be limited to only what is absolutely necessary to protect their interests.

Again, in practice, the employers often prepare non-compete agreements with draconian restrictions, and also include overly broad non-solicitation and confidentiality provisions that leave the employee thinking they are stuck in Hotel California, i.e., “you can check-out any time you like, but you can never leave!”

Another dirty-little-secret that the employers will rarely tell their employees is that the agreement needs to be signed when you initially start work, or you need to get a raise or a bonus if asked to sign it once you are already employed. This is because in South Carolina, the rule is that if a “covenant is entered into after the inception of employment, separate consideration, in addition to continued at-will employment, is necessary in order for the covenant to be enforceable.”

Relationship to Trade Secrets?

The employer’s interests does not have to rise to the level of a trade secret for the non-compete agreement to be enforceable, although in practice we often find claims involving both non-compete agreements and allegations of trade secret misappropriation.

Non-Solicitation and Confidentiality Provisions:

As stated above, the non-compete agreement may also include other provisions that are so broadly drafted that they amount to a non-compete. In South Carolina, our courts have held that any so-called “non-solicitation” agreement that in practice is the equivalent to a non-compete, will be evaluated under the same rules as non-compete agreements. IN that case, the court held the non-solicitation agreement was unenforceable.

What Can You Do If …

So what are your options:

  • if you are an employer, you need to periodically review your agreements an consider updating them as employee’s job responsibilities and geographic areas change;
  • if you are an employee, you may need to review your agreement before you take that next job;
  • if you have been sued, you will likely need to obtain counsel, or maybe your new employer will help out in this regard; or
  • you may have other options depending on the particular situation.

As shown briefly above, this can be one of the trickiest areas of law to work in, as you may not know what rules will apply until after the case has been filed for months or even years.

Below are a few examples of cases Mr. Few has handled addressing trade secrets, non-competes and related issues:

Example 1 – Business Non-Compete, Alleged Trade Secret Theft

Served as counsel to a business client that was being sued over enforcement of non-compete provisions related to the break up of a franchise agreement. Assisted in negotiating a settlement to limit the terms and enable both parties to continue to do business, and dismissal of the lawsuit.

Example 2 – Alleged Trade Secret Misappropriation by Departing Employee

Served as counsel to departing employees accused of trade secret theft and violating non-compete and confidentiality provisions of employment agreements. Assisted in negotiating settlements, including complete computer forensic audits and enabling the clients to continue to work and earn a living.

Example 3 – Non-Compete Counseling

Served as counsel to employers and employees regarding enforcement of employee and business sale non-compete provisions.

If you or someone you know needs assistance understanding the law with respect to non-compete agreements in South Carolina, if you have been sued for violating a non-compete, received a cease-and-desist letter regarding your non-compete or any other provisions in an employment agreement, contact our firm at 803-223-6942 for a free consultation.

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