Category Archives: No Legitimate Interest

Trans-Obligation: The Non-Disclosure Agreement (NDA) is Really a Non-Compete.

A handsome young businessman tied up and sitting at his desk

So, an employee signs an employment agreement.  The agreement contains (among other things) non-compete provision and a non-disclosure provision (NDA).  The employee wants out of both obligations.  Otherwise, his ability to earn his best living will significantly be restrained by each.  

If the NDA actually is read literally then every bit of the industry related information is defined as his former employer’s “Confidential Information.”  If enforceable, he would be completely prohibited from using it anyway or at any time.  Wow. This NDA is really a non-compete dressed up as something appearing more innocent.

On March 1, 2017, the South Carolina Court of Appeals confronted a similar set of facts when it invalidated an employment agreement containing a noncompete and NDA. In Fay v. Total Quality Logistics, the Court of Appeals found the definition of “Confidential Information” in an employment agreement’s non-disclosure provision was so broad as to function as a non-compete.  Because an enforceable non-compete agreement requires a reasonable time limitation and because the non-disclosure provision lacked such a time limitation, the Court of Appeals held the entire agreement unenforceable. 

It’s a bird.  It’s a plane.  It’s Muckenfuss.

The Fay decision reaffirms the public policy recognized in Muckenfuss: the right to pursue our greatest worth.   South Carolina appellate courts have demonstrated a consistent recognition of this “right to work.”   Courts subject restrictive covenants and non-disclosure agreements to close scrutiny in deference to the public policy in favor of competition and in defense of this:

“[T]he right of an individual to follow and pursue the particular occupation for which he is best trained is a most fundamental right. Our society is extremely mobile and our free economy is based competition. One who has worked in a particular field cannot be compelled to erase from his mind all of the general skills, knowledge and expertise acquired through his experience. These skills are valuable to such employee in the marketplace for his services. Restraints cannot be lightly placed upon his right to compete in the area of his greatest worth.”  Carolina Chemical Equipment Company v. Muckenfuss, 322 S.C. 289, 471 S.E.2d 721 (S.C. Ct. App. 1996).

Bottom line: Regardless of its form, a contractual infringement on the right to work must be no more than is absolutely necessary. If the infringement goes any further, the agreement will be invalidated.

Let’s chalk another one up for the good guys!

Physician Non-Competes Upheld by South Carolina Court of Appeals: Baugh v. Columbia Heart Clinic, P.A

In its first non-compete case involving a physicians, the South Carolina Court of Appeals used mostly well-trodden commercial case precedent to reverse a bench trial holding that the agreements were unenforceable and awarding relief under the Wage Payment Act in Baugh v. Columbia Heart Clinic, P.A., 2013 S.C. App. LEXIS 5, 20 Wage & Hour Cas. 2d (BNA) 202 (S.C. Ct. App. Jan. 16, 2013).  Baugh involved two cardiologists who left Columbia Heart in 2006 and, within one month, established their own cardiology practice approximately 300 yards from Columbia Heart’s then-new Lexington County facility.  The doctors sought an injunction preventing enforcement of no-compete agreements based on forfeiture and liquidated damages clauses that were intended to prohibit them from practicing or assisting in the practice of cardiology for one year within 20 miles of Columbia Heart offices where they had routinely practiced.

 The Court of Appeals upheld the non-compete in a set back for all employees as well as consumers of medical services.  Non-competes in the medical field (like many others) limit choices and limit supply for services.  However, Baugh ignored robust debate in other states– including a  pronouncement by the American Medical Association — concerning what some consider the injurious  public impact of physician non-compete agreements. Among the other holdings in Baugh, Court of Appeals held the following:

  •  the non-compete agreements at issue in the case were supported by consideration (a $5,000-per-month/ $60,000 total for compliance with the non-compete agreement) ;
  • liquidated damages for each doctor of one year’s W-2 income of roughly $591,710 and forfeiture by each doctor of $240,000 — in  a combination earned but unpaid salary, pro rata shares of accounts receivable, and the $60,000 noted above  — were not penalties; and
  • unpaid salary and accounts receivable, along with director’s fees, were not wages “due” under South Carolina’s Wage Payment Act (on the rationale that the doctor’s forfeited their rights to these items).

There were several issues that deserved greater consideration–for more in-depth treatment click and read on. Continue reading

New 4th Circuit Case Shoots Down Non-Compete

There is a new Fourth Circuit Court of Appeals case, in which the Court held a non-compete was unenforceable: Lapman v. DeWolf Boberg & Associates, Inc., 2009 WL 757368 (4th Cir. 2009). In Lapman, the plaintiff, a former employee and shareholder, had been terminated and had went to work for Synergetics, a direct competitor of his former employer.  Defendant brought a counterclaim to enforce the non-compete.  Applying South Carolina law, the District Court granted summary judgment in favoring for defendant-employer, finding the non-compete to be enforceable because it “only prohibited [Lapman] from working for a direct competitor in positions similar to the ones he held at DBA.” Id. at *3. 

On appeal, the Fourth Circuit began by noting that the non-compete explicitly stated that the plaintiff “will not, directly or indirectly, engage in Competition with [DBA]….” Id. at *6 (emphasis in original). However, the Fourth Circuit unanimously disagreed with the District Court and reversed: Continue reading