During my 20 years, I have learned much.  My experience has taught me that most of the time the truth is somewhere in the middle and so is a fair outcome.  But, litigation, like much of life, can be unfair.  In the employment area, the law is stacked against employees, who can be whipped into submission with threats of pay forfeiture, at-will terminations, and non-competes.  People who suffer injury at the hands of others must wait years for a chance at justice and in the meantime must battle insurance companies and large corporations for their fair share.  The system is too expensive for many people to get help.

However, my experience gives me some hope.  Juries are not perfect, but they get it right enough to provide leverage for middle class litigants to negotiate on a more equal footing with big business. Most judges want to do the right thing (even if time did not permit him/her to read my brief before the hearing).  Most people only want what is fair and are not looking to enrich themselves (and it is a good thing because despite what chamber of commerce pawns say, windfall jury awards are rare.)  Most lawyers are honest and hardworking people.  So, there is reason for optimism for those who must turn to our court system.

But, never to be complacent, my staff and I are tweaking some of our practices to be even more responsive to our clients, to use technology to improve communication and efficiency, to continue educating ourselves about developments in the law, and to use the internet to educate employees, consumers and breadwinners about their legal rights.  Although I have gotten a late start on my resolution of blogging more regularly, this post is my start.

The challenge and potential of a solo practitioner has made toughened me up and calmed me down; the stakes are always high for me and my clients so maintaining an even keel is critical to success as well as sanity.  I am committed to making my 20^th year my best, although I am fairly certain I do not have another 20 years as a litigator ahead of me.  However, at present, I am at the top of my game and ready to use my hard earned experience for the benefit of my clients.

Take stock, take control and take time to enjoy it whenever you can.  Happy New Year!

The South Carolina Bar kicked off its “Proud to be a South Carolina Lawyer” campaign. I was one of 13 featured.

Next door in Georgia, the state has amended the constitution to change its non-compete law. How much so?  The Georgia Non-Compete and Trade Secrets News blog says this: “This new law makes it significantly easier for employers to enforce non-competes and other restrictive covenants against former employees, at least with respect to restrictive covenants in contracts that are signed from this point forward and are thus governed by the new law.”  Here is a blog post by Trade Secret/Non-Compete that provides a brief description of the law.  The change went into effect in May 2011.  However, the Georgia constitution now grants courts to blue pencil non-competes, which South Carolina courts still refuse to do.

Too many employees who have signed a non-compete agreement fail to take notice that they have agreed to be sued in another state.  These provisions are known as “forum selection clauses.” The costs of going to another state to defend yourself can be significantly higher than litigating in your home state.  At least half of the agreements I review state that the parties have agreed to having another state’s court will decide any dispute.

However, if you are a South Carolina resident, you should know that S.C. Code § 15-7-120(A) states:  ”Notwithstanding a provision in a contract requiring a cause of action arising under it to be brought in a location other than as provided in this title and the South Carolina Rules of Civil Procedure for a similar cause of action, the cause of action alternatively may be brought in the manner provided in this title and the South Carolina Rules of Civil Procedure for such causes of action.”  This statute essentially provides that a S.C. resident, who has signed a contract with a forum selection clause, may file their case in a South Carolina court as long as it otherwise has jurisdiction.

In the case of a forum selection clause in S.C., it can be a race to the courthouse.  The stakes can be high.

The other protectable interest advanced by employers in defense of post-employment non-competes is its trade secrets.  Employers assert that certain confidential information and/or trade secrets justify restrictions on competitive employment. But, of course, trade secrets have no geographic boundaries; what do you think an employer’s response would be to the proposal not to use its trade secrets in South Carolina but to be able to use them anywhere else?  The company would be incredulous.  And so, it is just as ludicrous that a former employer will attempt to restrict an employee’s employment geographically based upon those same boundless trade secrets.

It seems clear to me that in most, if not all, situations an agreement not to solicit existing customers and an agreement to refrain from disclosing and/or using trade secrets will render  geographic non-competes obsolete.  Certainly, there may be a few circumstances where the scope of knowledge of trade secrets will be asserted as the basis for more restrictive covenants, but even in these instances, geography seems to be of little relevance.  Counsel for employees seeking to beat a non-compete should begin a wholesale attack on geographically based non-competes, and courts should begin to move past the model of the past when business was mostly territorial bound.

NOTE: I have excluded non-competes arising out of the sale of a business since a geographical limitations might be relevant when someone sales a retail operation with a local presence.  It also seems that the above might not apply to local media personalities who have geographical restrictions, although these non-competes are otherwise problematic.  I welcome any argument about the above—to sharpen the logic will require some blunt rebuttals.

My personal experience is consistent with the trends noted by the Shepherd Law Group study.  More employers are seeking non-competes from new employees, existing employees and even employees who have been fired (and offered severance).

UPDATED (9/5/2011):  The chart was updated as has this blog post.

Perhaps the most important aspect of the 3^rd Circuit’s ruling was the conclusion that under Pennsylvania law, a disclosure of a trade secret need not be “inevitable” but merely likely:

In other words, the District Court concluded, albeit somewhat paradoxically, that Pennsylvania courts apply the “inevitable disclosure doctrine” to grant injunctions based not on a trade secret’s inevitable disclosure but on its likely disclosure. Cf. Pepsico, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995) (“[a] plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.”) (emphasis added). While we agree with the District Court that Pennsylvania law empowers a court to enjoin the threatened disclosure of trade secrets without requiring a plaintiff to show that disclosure is inevitable, we do not consider that an injunction granted absent such a showing was issued pursuant to the “inevitable disclosure doctrine.”

More specifically, the Court of Appeals stated:

[T]he “proper inquiry” in determining whether to grant an injunction to prevent the threatened disclosure of trade secrets is not whether a defendant inevitably will disclose a trade secret in the absence of injunctive relief, but instead whether “there is sufficient likelihood, or substantial threat, of defendant doing so in the future.”

(citations omitted).  The Court rejected the “virtual impossibility” standard, which had been enunciated in a prior 3^rd Circuit opinion finding that use of the term was dicta.

Also of interest, the Court recognized that there were competing public interests at play in the case.  The court found that the case pitted the public interest in “inviolability of trade secrets” against the public interest  “in employees being free to work for whom they please.”  Moreover, the court recognized that “[o]f these latter two interests, Pennsylvania courts consider the right of the employee to be the more significant.”  Nonetheless, the court of appeals sided with trade secrets. And so, when all the word games were over, a Bimbo by any other name is still a Bimbo.

To read the Law.com story reporting about the case in more detail, click here.

Rule 65 of the South Carolina Rules of Civil Procedure governs TROs and injunctions. (Federal Rule 65 applies in federal courts.) First, a TRO is simply an order of the court to refrain from doing something for 10 days, although it can be extended for a short period of time (days).  The goal of the TRO is to maintain the status quo until the matter can be more fully considered after presentation of evidence and legal argument.  The court may grant a TRO without notice.  On the other hand, Rule 65(e) states “No temporary restraining order shall be granted to suspend the general and ordinary business of an individual, partnership, association or corporation. Same may be suspended only by injunction after notice.”

Shortly thereafter, a hearing is scheduled at which both sides can present evidence and make legal arguments.  If the court determines that a temporary injunction is warranted, then the court will ask the moving party to prepare an order. A court may suspend the business of an individual or company after a hearing (although it is rare to completely shut down a business). The duration of a temporary injunction can be for a specific term or until the final trial of the matter (12-18 months). In the non-compete context, the scope of the injunction can be more limited than the non-compete but it will generally not be broader. (However, see siscussion of Inevitable Disclosure.)

First, the most basic requirement for granting an injunction is a finding that an injunction is necessary to prevent irreparable injury.  Irreparable injury is an injury that cannot be fully compensated with money damages. So, with this in mind, the court considers four factors in determining whether to issue an injunction: (1) the likelihood of irreparable harm to the plaintiff if the preliminary injunction is denied, (2) the likelihood of harm to the defendant if the requested relief is granted, (3) the likelihood the plaintiff will succeed on the merits, and (4) the public interest.  Of course, these factors lend themselves to subjective judgments, which means a court generally can find a way to do whatever the judge wants to do. (But not always.)

Practice tip: It is my belief that our thoughts have a strong tendency to follow our feelings.  The story behind a motion for an injunction will generate thoughts and feelings, which will influence how the judge perceives the evidence and weighs the parties’ competing interests.  If the story begins “she copied all my client and pricing information onto her hard-drive, quit without notice and started calling my clients first thing the next morning…”, the judge will form an unfavorable impression of the departing employee.  Naturally, the judge will be more open to granting an injunction.  However, if the story is that of a loyal employee who honestly exits the workplace or better yet a stellar employee who is fired without cause and without notice, the judge will feel differently about granting an injunction.  So, make sure your story is one that you will be proud for the judge to know, and assume the judge will know all the facts, emails, phone calls, text messages and conversations associated with your story.  (Also, check out Eight Ways to Guarantee Yourself A Non-Compete Lawsuit and E-Discovery: You Can Delete, But You Can’t Hide)

Second, you should know that an injunction is immediately appealable.  This means that if the trial judge issues an injunction, you do not have to wait until the case is over to appeal, but you can appeal the injunction ruling.  (Although, it may take a while before the appellate court can hear the appeal.) You should also know that if an injunction is granted, the party who sought the injunction must post a bond to cover damages if it is later determined that the injunction was wrongfully granted.  So, if the court grants an injunction preventing you from working, and later the non-compete is determined to be unenforceable, you can seek to recover your lost wages/income against the bond.

An injunction is a scary prospect for an employee who quits a job to take a better one or has started her own competitive business.  The stakes are high, so high that it may be the most important battle in the non-compete litigation.  However, as with most legal matters, planning in advance rather than preparing after the fact provides you with many more options to shape your story, understand your risks and develop contingency plans.

In Poynter Investments v. Century Builders, the Appellant/Rector sold his business to Respondent/Poynter and on the same day entered into a one year “Employment and Non-Competition Agreement.”  Under the terms of this Agreement, Rector agreed to a 4 year non-competition clause, which included the following territorial restrictions:

1. Definitions.  In addition to other terms defined elsewhere in this Agreement, unless the context shall expressly or by necessary implication indicate to the contrary, as used herein, the following terms shall have the following meanings:

(a)     “Business” is as defined hereinabove.

(b)     “Restricted Territory” means:

(i)  An area encompassing seventy-five (75) miles in any direction from the Premises.

(ii)  In the event the preceding subparagraph (i) shall be determined by judicial action to be unenforceable, the “Restricted Territory” shall be Greenville County, South Carolina and any county that borders Greenville County, South Carolina.

(iii)  In the event the preceding subparagraph (ii) shall be determined by judicial action to be unenforceable, the “Restricted Territory” shall be Greenville County, South Carolina.

Poynter sued Rector alleging a breach of the non-compete and seeking a preliminary injunction. The trial judge found that Poynter would suffer irreparable harm unless the agreement was enforced, but, without further explanation, ordered:

the [appellants], including any entity associated with [appellants], to be enjoined and restrained from violating the terms of the non-compete covenant within Greenville County, South Carolina and within an area encompassing fifteen miles in any direction from [the Premises].

Rector appealed.

One issue considered by the S.C. Supreme Court on appeal was whether the trial judge erred by rewriting the territorial limitation in the non-compete clause. The Supreme Court reversed the trial judge and held as follows:

…[I]n South Carolina, the restrictions in a non-compete clause cannot be rewritten by a court or limited by the parties’ agreement, but must stand or fall on their own terms. We hold, therefore, that the trial judge erred in rewriting the territorial restriction in the parties’ contract.

The holding appears clear enough, and maybe it is.

However, the opinion is interesting for the cases not discussed or even mentioned by the Supremes.  One such case is Somerset v. Reyner, 233 S.C. 324, 104 S.E.2d 344 (1958), in which the South Carolina Supreme Court considered whether to blue-pencil (modify, rewrite) an otherwise overly broad provision.  In Somerset, the Court stated:

A majority of the courts apply the so-called ‘blue pencil test’, that is, if the excessive restraint is severable in terms, it may be disregarded and the remaining part of the contract enforced; but if the contract is not severable in terms, the entire covenant falls.

*            *            *

The covenant here is clearly indivisible. It covers the entire State of South Carolina and furnishes no basis for dividing this territory. Not only does the contract show that it was the intent of the parties that this covenant be treated as indivisible, there is no basis for drawing a sharply defined line separating the excess territory. We cannot make a new agreement for the parties into which they did not voluntarily enter.

The second case in which our Supreme Court considered blue-penciling divisible covenants was Eastern Business Forms, Inc. v. Kistler, 258 S.C. 429, 189 S.E.2d 22,(1972). The Eastern Business Forms case was similar to Somerset, and the opinion in fact quoted the above language, before deciding:

The restrictive covenant here is clearly indivisible because it provides a 100-mile radius of the City of Greenville or of the central city where the appellant performs his services as a salesman, and furnishes no basis for dividing this territory. The contract shows upon its face that it was the intent of the parties thereto that this covenant be treated as indivisible. It follows, that there is no basis for drawing a sharply defined line separating the excess territory.

Of course, there is nothing about the holdings of Somerset and Eastern Business Forms that are inconsistent with the holding of Poynter.  However, the Supreme Court did at least consider the notion of blue-penciling divisible covenants, and those decisions at least suggested that if the covenants had been divisible, the Court would have blue-penciled.  Why not discuss the language from these two cases?

The suggestions contained in these two opinions were the basis for the holding of the United States District Court in Rockford Mfg., Ltd. v. Bennet, 296 F.Supp.2d 681 (D.S.C. 2003).  In Rockford, the Court noted “Eastern and Somerset delineate two important principles for determining the enforceability of non-solicitation clauses. First, as stated, the contract must be severable. Second the severability must be apparent from the contract itself–in language and subject matter.” However, in Rockford, the District Court concluded that the covenant was divisible (i.e., “severable”) and that because the contract contained a severability clause, the overly broad non-compete could be blue-penciled/modified.  Rockford is the only reported decision in which South Carolina law has been applied to blue-pencil (and save) an overly broad non-compete; the Supreme Court did not even mention or cite this case in its Poynter decision.

So what gives?  The Supreme Court in Poynter seems to have clearly rejected blue-penciling.  It appears clear that the covenant not to compete considered in Poynter was in fact divisible, and the agreement expressly stated that the various provisions are included as alternatives in the event a court found any provision to be overly broad. (There is no discussion as to whether there is a separate severability provision.)  Nonetheless, the Court chose to ignore the trio of cases suggesting the availability of blue-penciling of divisible covenants.

And so, perhaps Poynter by its application to the non-compete in dispute can be said to definitively rejected blue-penciling once and for all.  This will certainly be my position when I cite Poynter. However, because the court did not take on Rockford “head on,” I am certain opposing counsel will argue otherwise.