Lucas resigned from Team IA in February 2009.  After he resigned, Lucas contacted all but one of the customers with whom he had worked and advised each of his departure.  One such customer, Fulton County, Georgia, pulled a project from Team IA and awarded it to 5 Point Solutions, LLC, which is the company Lucas established just one week after his resignation.  Another customer pulled a scanning project and awarded it to 5 Point Solutions.  A lawsuit quickly followed.

The non-compete at issue prohibited Lucas from soliciting and/or selling within the “Restricted Territory” for 12 months after termination.  Restricted Territory was defined as “the entire continental United States” but if this was deemed unreasonable “then such territory, shall be defined as the states of South Carolina, North Carolina, Georgia and Alabama.”  The court held that the nationwide restriction was “overly broad on its face.”  However, the Court of Appeals determined there was a question of fact as to whether the “step down” provision four state territory was overly broad and remanded the case back for further proceedings.

The Court then notes that there was conflicting evidence in the record as to “whether the ‘sales activity’ Lucas conducted as documented in the expense report included contact with Team IA customers in South Carolina, North Carolina, Georgia and Alabama is unclear.” So, it was necessary to inquire “into the nature of Lucas’ assigned territory and contact with customers/potential customers….” In support of this inquiry, the Court cited Standard Register.

In Standard Register Co. v. Kerrigan 238 S.C. 54 (1961) the Supreme Court precluded an employee from “selling to the accounts or in the territory in which he has been performing his duties as such sales representative.” But, doesn’t that just beg the question, what is the meaning of “territory?”  Does it mean the national territory (no), the state territory, the county territory, the neighborhood, or the actual plot of land on which the customer was located?

Although the case was not cited, it seems this question has been mostly answered in Oxman v. Sherman,   239 S.C. 218, 122 S.E.2d 559 (1961). In Oxman, the South Carolina Supreme Court held that a state wide prohibition when the employee’s dealings occurred in only two counties was overly broad. “Any covenant should have been limited to the area where he worked. Extending it to the entire State rendered it unenforceable.” See also Rental Uniform Serv. v. Dudley,  278 S.C. 674, 301 S.E.2d 142 (1983)(citation omitted)(“A geographic restriction is generally reasonable if the area covered by the restraint is limited to the territory in which the employee was able, during the term of his employment, to establish contact with his employer’s customers.”). So, shouldn’t the lower court be looking at contact on at most a county by county basis to determine if a statewide prohibition is enforceable? Hopefully, we shall find out.

The Court of Appeals wanted to make sure that it acknowledge the Supreme Court’s last case on blue penciling, Poynter Invs., Inc. v. Century Builders, 694 S.E.2d 15 (2010), in evaluating the step down provision.  The Court emphasized that it was not “insert[ing] a geographical limitation where none existed.”  In fact, the Court concluded this discussion with the following:

 Therefore we interpret the Supreme Court’s holding in Poynter to mean that (1) a court  may not “blue pencil” the restriction contained in a non-competition provision by inserting or subtracting terms not agreed to by the parties in order to make it valid and enforceable, and (2) the parties may not of their own accord convert an overly broad  territorial restriction into an enforceable one by entering into a subsequent agreement that artificially limits the actual terms used by the parties original contract.

Lucas, 717 S.E.2d at 107.

Perhaps the most irritating part of the Lucas case is this footnote:  “We decline to rule on whether a non-solicitation agreement’s prohibition on contact with former prospective customers of a former employer is overly broad and unenforceable on its face….” It seems that present law supports enforcement of a non-geographic non-solicit if it limited to “existing customers.”  See Wolf v. Colonial Life and Acc. Ins. Co., 309 S.C. 100, 420 S.E.2d 217 (S.C. App. 1992).  This footnote only presents more cause for confusion at the trial court level—in this case and others.

Finally, the case also contains some rather unsurprising discussion of the choice of law provision.  The bottom line is if a contract provides South Carolina law applies, then there is no need to apply traditional choice of law rules.  The Court of Appeals believes the contract answers that question.

Take away:  A nation-wide prohibitions are overly broad “on its face.” (I don’t believe it in all cases.) Statewide non-competes are not per se overly broad, but precedent still intact holding employee contact must be statewide and not limited to just a few counties.  Non-solicitations also present factual questions, apparently even if the apply to “prospective customers.” (If this is affirmed by the Supreme Court, it will be a dramatic expansion of enforcement.) And, “step down” provisions are probably enforceable, although they only invite mischief.

Note:  At time of drafting of this post, I believe one of the parties had petitioned the South Carolina Supreme Court for cert.

I represent a couple of businesses hiring employees with non-competes: speak of uncertainty.  In addition to uncertainty, litigation expense can be significant, especially the way time-churning larger firms bill.  Litigation can function as a tax (payable to lawyers) incurred for those businesses which hire employees with a non-compete–and now it does not always even take a non-compete.  So, the fact is that non-competes are not just a matter between employer and employee, but impact customer, hiring businesses, and consumers.

Another fact: Politicians from both parties are AWOL.  State Democrats are mostly clueless. The issue does not fit the interest group politics that dominate its agenda. On the other hand, Republicans get their marching orders from the chambers of commerce, which tends to represent established business interests as opposed to consumers, employees and entrepreneurs. This crowd calls itself “pro-business,” which apparently means the ability of some businesses to prevent competition so that you can protect customers from efficient and cheaper goods and services.

Final fact:  South Carolina courts provide little guidance. Trial courts are ill-equipped to issue a speedy resolution of matters where delay is truly justice denied.  So, employees, customers, and real job creators are left to wonder and wait.  And the fact is no one knows how long.

I should probably be careful here.  First, many judges do read materials prior to the hearing and those who cannot/do not, generally take the matter under advisement to consult the materials after the hearing. Why not before the hearing?  There are several reasons, and many are not the fault of the trial judges.  Our judicial system is underfunded, many/most judges don’t even have law clerks and dockets are crammed with civil and criminal cases. Also, many times the parties overbrief the issues.  Two fifteen page memorandums with fifty pages of exhibits is a deterrent to a judge who will have five different motions scheduled at the same time. (You never know which lawyers will chicken out before the hearing.)

However, there are more than a few judges who simply do not read the submissions or only sometimes read them or only partially read them.  Too many times, my client’s guess is as good as mine as to which will happen in each case (unless I am at home in Greenville County, in which case I have a better idea.)  And, because different judges hear motions each week, you usually do not know which judge will hear your case until after you file your motion. And for this reason (and others), no matter what the law is and/or what the facts are, a lawyer cannot guarantee what a judge will do:  EVEN IF THE LAW APPEARS CLEAR.  Law should not be a game of craps, but too often, it sure feels like it.

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.