“Noncompetes aren’t worth the paper they’re written on,” says your relative who talked to someone who has a cousin who is a lawyer. “This is a right to work state,” he adds. Well, maybe once upon a time. Today, South Carolina Courts will enforce a narrowly tailored noncompetition agreement (also known as a “covenant not to compete”) as well as a reasonable non-solicitation agreement. It gets even a little dicier for former employees when you add in non-disclosure agreements, the South Carolina Trade Secrets Act, and the evolving inevitable disclosure doctrine. Good news is that many employers do not narrowly draft their restrictive covenants, and this overreach opens the door to beating your non-compete.
Non-Compete Law in a Nutshell
“While recognizing the legitimate interest of a business in protecting its clientele and goodwill, we are equally concerned with the right of a person to use his talents to earn a living.” Sermons v. Caine & Estes Ins. Agency, Inc., 275 S.C. 506, 509, 273 S.E.2d 338, 338 (1980).
Therefore, restrictions on competition “are generally disfavored and will be strictly construed against the employer.” Rental Uniform Serv. of Florence, Inc. v. Dudley, 278 S.C. 674, 675, 301 S.E.2d 142, 143 (1983).
Hence, they “must be narrowly drawn to protect the legitimate interests of the employer.” Faces Boutique, 318 S.C. at 42, 455 S.E.2d at 708.
Such an arrangement is enforceable only if it is (1) supported by valuable consideration; (2) necessary to protect the employer in some legitimate interest; (3) not unduly harsh and oppressive in curtailing the employee’s legitimate efforts to earn a livelihood; and (4) otherwise reasonable from the standpoint of sound public policy. Rental Uniform Serv., 278 S.C. at 675–76, 301 S.E.2d at 143.
The arrangement must be reasonably limited “with respect to time and place,” but an otherwise reasonable limitation on the solicitation of former clients can substitute for a territory restriction. Rental Uniform Serv., 278 S.C. at 675–76, 301 S.E.2d at 143; Wolf v. Colonial Life & Acc. Ins. Co., 309 S.C. 100, 109, 420 S.E.2d 217, 222 (Ct.App.1992).
A South Carolina District Court has held that the employer’s “interests to be protected [were] its existing business contacts, customer goodwill, trade secrets, and proprietary information. These concerns are legitimate business interests that warrant protection.” Hagemeyer N. Am. Inc. v. Thompson, No. C/A 2:05-3425, 2006 WL 516733, at *4 (D.S.C. Mar. 1, 2006).
If a covenant not to compete is defective in one of the above-referenced areas, it is totally defective and cannot be saved. Faces Boutique, Ltd. v. Gibbs, 455 S.E.2d 707, 708-09 (Ct. App. 1995) (citations omitted). “We must uphold the covenant as written or not at all, it must stand or fall integrally.” Id. (emphasis added).
Whether or not such a non-compete is reasonably limited in its operation is a question of law. See Stringer v. Herron, 424 S.E.2d 547 (Ct. App. 1992).
Geographically Limited
The law of South Carolina could not be clearer: “Any covenant should have been limited to the area where he worked.” Oxman v. Sherman, 239 S.C. 218, 122 S.E.2d 559 (1961) (citations omitted) (emphasis added). “It is well settled that while contracts in general restraint of trade are against public policy and void, yet those in partial restraint, founded upon a valid consideration and reasonable in their operation, are valid and binding.” Reeves v. Sargeant, 200 S.C. 494, 21 S.E.2d 184 (1942) (internal citations omitted). “To be considered reasonable, a territorial restriction must not cover an area any broader than is necessary to protect the employer’s legitimate interest.” Stringer v. Herron, 309 S.C. 529, 424 S.E.2d 547 (Ct. App. 1992), citing Standard Register Co. v. Kerrigan, 238 S.C. 54, 119 S.E.2d 533 (1961). “If . . . the territorial scope of restraint is unreasonable. . . no inquiry need be made as to the presence or absence of other necessary requirements.” Stringer, 424 S.E.2d at 548 (citation omitted).here
The South Carolina Supreme Court has held that a state-wide prohibition was overly broad when the employee’s dealings with customers occurred in only two counties. Oxman, 239 S.C. 218, 122 S.E.2d 559. “Any covenant should have been limited to the area where he worked. Extending it to the entire State render[s] it unenforceable.” Id.; see also Team IA, Inc. v. Lucas, 395 S.C. 237, 245, 717 S.E.2d 103, 107 (Ct. App. 2011); Uniform Serv. v. Dudley, 278 S.C. 674, 301 S.E.2d 142 (1983) (“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.”).
In Baugh v. Columbia Heart Clinic, P.A., 402 S.C. 1, 21, 738 S.E.2d 480, 491 (Ct. App. 2013), the South Carolina Court of Appeals upheld a non-compete preventing competition in interventionalist cardiology within a 20-mile radius. The court found that the cardiologists did not establish that their inability to perform interventional procedures would prevent them from having a viable practice after the one-year period.
The South Carolina Court of Appeals considered the enforceability of territorial restriction of 15 miles “surrounding the three practice locations reached into adjoining counties and another state….” “[C]onsidering that an overwhelming majority of Stringer’s clients lived much closer than 15 miles from at least one of the practice locations, we hold the territorial restriction to be overbroad; therefore, it is unreasonable and unenforceable.” Stringer v. Herron, 309 S.C. 529, 532, 424 S.E.2d 547, 548 (Ct. App. 1992)
Must Protect Legitimate Interests
In Milliken & Co. v. Morin, 399 S.C. 23, 37, 731 S.E.2d 288, 295 (2012) the court noted approvingly that:
“[L]egitimate interests of an employer that may be protected from competition include: the employer’s trade secrets that have been communicated to the employee during the course of employment; confidential information other than trade secrets communicated by the employer to the employee, such as information regarding a unique business method; an employee’s special influence over the employer’s customers, obtained during the course of employment; contacts developed during the employment; and the employer’s development of goodwill and a positive image.”
Additionally, the South Carolina District Court has held that the employer’s “interests to be protected [were] its existing business contacts, customer goodwill, trade secrets, and proprietary information. These concerns are legitimate business interests that warrant protection.” Hagemeyer N. Am. Inc. v. Thompson, No. C/A 2:05-3425, 2006 WL 516733, at *4 (D.S.C. Mar. 1, 2006).
One of the best cases for employees related to the “protect a legitimate interest” prong is Faces Boutique, Ltd. v. Gibbs, 455 S.E.2d 707, 708-09 (Ct. App. 1995) There the court was considered a “covenant [that] seeks to prevent [Gibbs] from being associated in any capacity with any business which gives facials, sells cosmetics, etc. Such a prohibition goes far beyond the protection of any legitimate business interest [Faces] may be able to articulate. This broad prohibition also prevents [Gibbs] from earning a livelihood through legitimate means.”
In Poole v. Incentives Unlimited, Inc., 345 S.C. 378, 382, 548 S.E.2d 207, 209 (2001), the Supreme Court of South Carolina considered the following question: “[W]hether continued at-will employment is sufficient consideration to enforce a covenant entered into days, months or even years after the initial employment offer.” The Court held that continued employment was not sufficient consideration for a non-compete entered into after the initial offer of employment, and it determined that “when a covenant is entered into after the inception of employment, separate consideration, in addition to continued at-will employment, is necessary in order for the covenant to be enforceable.” Id.
The Right to Pursue Your Greatest Worth
In Carolina Chemical Equipment Company v. Muckenfuss, 322 S.C. 289, 471 S.E.2d 721 (S.C. Ct. App. 1996)
“[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 market place for his services. Restraints cannot be lightly placed upon his right to compete in the area of his greatest worth.”
Conclusion
Of course, there are other avenues of attack, and each case is unique. The facts matter. Contractual language that is overly broad in one context may not be overly broad in another context. And at the trial court level, decisions can be unpredictable and have as much to do with the views of the trial judge as with precedent — which can in many cases support either side. It is wise to seek out qualified legal counsel at the earliest possible opportunity before you get too far down a one-way street.