As we’ve previously noted on this blog, the basic rule is that for a non-compete agreement to be enforceable in South Carolina, it must be (1) necessary for the protection of the legitimate interests of the employer or purchaser, (2) reasonably limited 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 valuable consideration. The same standards that govern the enforceability of non-competes for an employee/employer relationship also apply to the use of non-competes in the sale of a business.
In Palmetto Mortuary Transport, Inc. v. Knight Systems, Inc., the South Carolina Court of Appeals recently reviewed the enforceability of a non-compete in the sale of a business context. This non-compete prevented seller Knight Systems, a mortuary transport business based in Lexington County, from competing against new buyer Palmetto Mortuary anywhere within 150 miles of Lexington County, which is where the Knight’s business was located, for a period of ten years. Four years later, Knight began competing against Palmetto in Richland County (adjacent to Lexington County) in violation of the non-compete. Palmetto sued Knight for breach of the non-compete provisions (among other claims as well). Palmetto won at the lower court level, but Knight appealed.
The Court of Appeals, upon reviewing the case, determined that the 150 mile geographic restriction was overly broad and unenforceable. The court noted that the original business only operated in Lexington and Richland counties, but the 150 radius purported to keep Knight from competed in a much wider area (i.e., much of South Carolina and parts of surrounding states). Because Palmetto Mortuary had no legitimate business purpose in keeping Knight from competing in areas that Knight had never done business before, the court struck down the entire agreement, and refused to re-write the contract (or “blue pencil” it) to make it more reasonable.
This case should encourage employers and those selling their business to draft their non-competes with a more reasonable geographic scope (or else risk a court throwing the non-compete out altogether). But those who are asked to sign a non-compete should keep in mind that even if their non-compete is probably unenforceable, an employer can still sue to enforce it and cause the employee a lot of stress and attorneys’ fees.
We always recommend that you have an attorney review your non-compete (or non-solicitation or non-disclosure) BEFORE you sign it, but if you’re in a situation where you’ve already signed one and are facing a pending lawsuit, then you should speak with an experienced South Carolina non-compete attorney immediately.
So, one of the risks of fighting a non-compete is the provision that require employees to pay for their former employer’s attorneys fees if they lose the case: Seems fair. But, of course if fairness were the issue, the provision would be reciprocal and provide attorney’s fees for prevailing employees. And the standard for the amount is “reasonable attorneys fees,” and we know reasonableness is truly in the eye of the beholder. The first take away is to beware of fee shifting provisions, and if you have a chance to actually negotiate your agreement, make sure the fee shifting is a true mutual obligation.
Recently, I tried a case in which the former employer proved a breach of the agreement and sought attorneys fees in the amount of $750,000+. (Of course, this was a 6 year case.) And much of my experience is in litigating cases with fee shifting statutes, and those fees are awarded by the court and not the jury. But, the fee petition was so large, three times what the damages for breach were, and it seemed to me that an attorney’s fees claims should be a jury issue. A one week trial on lost profits, but an half hour hearing on three-quarters of a million dollars. So, I researched the issue and found that the issue of attorneys fees in contract cases may trigger Seventh Amendment rights.
FOR IMMEDIATE RELEASE
GREENVILLE, S.C. – Greenville Business Magazine has recognized Andy Arnold as one of the area’s Legal Elite in the practice of Labor and Employment Law.
In its first-ever survey, the magazine sent emails to 850 Greenville-area lawyers and asked them who, in their opinions, were the best lawyers in 20 practice areas. Respondents could nominate lawyers in their firms, but for each in-firm lawyer there had to be an out-of-firm lawyer nominated, although not necessarily in the same practice area.
A total of 95 lawyers were identified by their partners and peers as the Legal Elite of the Greenville area.
Greenville Business Magazine will honor the Legal Elite with a reception Aug. 16 at High Cotton.
After a lull in January, non-compete inquiries to my law office and resulting consults have returned to 2011 levels. The most disturbing trend seems to be that young, ambitious individuals who have seen their pay and commissions cut feel trapped because the risk of fighting a non-compete seems so daunting. Many of these folks believe they can offer more efficient service and better prices to customers. I can’t recall an instance in which the customers committed to an exclusive relationship. These customers stand to gain from competition: This is a fact. Continue reading
The law in South Carolina regarding non-compete agreements is sparse. So, trial courts are left to hash out disputes with modest guidance. Unfortunately, too often legal memorandums are not read prior to the hearing. In my last 3 non-compete hearings all in different counties, the opposing parties and I have submitted briefs, affidavits and exhibits before the hearings (two injunctions and one summary judgment motion) and not once had the judge read any of it by the time the arguments began. This would not have been so disturbing but for the fact that two of the three judges who had done no preparatory work felt able to rule from the bench after 15 or 20 minutes of opposing arguments, when some minimal review of the written materials submitted by both parties–even just the written contract itself–was necessary for a minimal understanding of the facts and the arguments. Continue reading
I was admitted to the practice of law in South Carolina on November 18, 1992. Just as watching my children age so rapidly before my eyes amazes me, the realization that I have practiced law for almost 20 years is hard to believe. When I first opened my own practice in 1994 I dreaded being asked how long I had practiced law; who in their right mind would hire someone only two years out of law school to handle an important case? Fortunately, the answer was enough for my practice to survive and eventually thrive. Continue reading
A Boston law firm, Beck Reed Riden, has developed a chart that outlines the law of non-competes in all 50 states. It is pretty good tool and an easy way to get some basic information about non-compete law. Review of information related to states with which I am familiar suggested this chart is accurate. This is just a starting point for information but every search begins somewhere.
UPDATED (9/5/2011): The chart was updated as has this blog post.
“Can they get an injunction?” is among the first several questions asked by folks seeking advice about a non-compete agreement. As a lawyer, I would like to be able to offer a straight answer. And sometimes I do, but almost always with a disclaimer. I can know what existing law states but I cannot know what the judge will say it means in your case. However, there is a standard process and factors for courts considering motions for injunctive relief, and it is helpful for the client to understand the basics.
The South Carolina Supreme Court has issued a new non-compete case, which overturned a lower court decision that enforced a non-compete after it modified (i.e., “blue penciled”) the agreement’s overly broad provisions. The case of Poynter Investments v. Century Builders (Op. No. 26821 May 24, 2010) is skinny on the details, but on the surface, the opinion suggests that “blue-penciling” is dead in South Carolina. However, the opinion fails to acknowledge and/or discuss language in older opinions suggesting an openness to blue penciling (discussed below) and completely ignores a federal court case permitting blue-penciling under South Carolina law (discussed below). Accordingly, there is still some room for a stubborn employer to argue for a limited reading of Poynter. Nonetheless, this case is important precedent for those seeking to invalidate a non-compete.