Monthly Archives: September 2008

Non-Compete Basics: Statement of the General Rule

It probably should be noted at the outset that non-compete agreements are issues under state law, although sometimes these agreements might implicate federal anti-trust statutes. In many cases, the law of non-compete is similar from one jurisdiction to the next; however, each state law is unique in varying respects. I am a South Carolina attorney. The statement of the law on this blog will generally based upon South Carolina law, and although it will be similar in other jurisdictions, local counsel should always be consulted with dealing with non-competes in other states.

Non-compete agreements, also referred to as “covenants not to compete” and/or a “noncompete” for short, contained in employment contracts are generally disfavored. According to the law, non-competes will be strictly construed against the employer, which means when doubts about interpretation will be resolved in favor of an employee. A non-compete will be upheld only if it is:

(1). necessary for the protection of the legitimate interest of the employer;

(2). reasonably limited in its operation with respect to time and place;

(3). not unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a livelihood;

(4). reasonable from the standpoint of sound public policy; and

(5). supported by a valuable consideration.

* * * *

If a covenant not to compete is defective in one of the above referenced areas it is totally defective and cannot be saved.

Of course, this just begs the questions: What is necessary for protection of an employer? What is reasonable time for a non-compete? What is reasonable geographic scope of a non-compete? What is “valuable consideration?” What about client non-solicitation clauses? And can non-competes be rewritten to make it enforceable? And these questions lead to more, which lead to more, and well, you get the picture.