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Noncompete Agreements in South Carolina: A Primer for Businesses

U.S. businesses covered nearly one in five employees with some form of noncompete agreement intended to prevent them from taking a job with a rival, according to research.

Recent press, including a feature in The New York Times, has placed a sharper focus on the impact that such agreements can have on the nation’s workforce and overall economy. Several states have cracked down on the use of these contracts, and in late 2016, the Obama administration recommended reform.

South Carolina law favors free enterprise and competition and generally disapproves of noncompete agreements. But such agreements can be valid if they are properly limited to strike an appropriate balance between protecting an employer’s interest in protecting trade secrets and investment in training employees with a worker’s right to make a living.

Requirements for an enforceable noncompete

Employers in South Carolina must make sure that their noncompete provisions are:

  • Narrowly tailored to protect an employer’s legitimate business interest. The mere loss of a trained employee is insufficient to make an agreement stand up, and courts will invalidate those that seem punitive.
  • Reasonably limited. Agreements must be reasonably limited as to:
  • Duration. Noncompetes purporting to last too long won’t be valid. Courts will generally enforce agreements lasting no more than two years.
  • Geography. Employers won’t succeed if they try to extend their provisions to cover areas where they do minimal business or don’t currently operate. A noncompete agreement covering a salesperson or anyone providing client service cannot extend beyond the employee’s sales territory or the area where services were performed.
  • Customers. An agreement only can place current (not previous or prospective) customers off limits to a departing employee.
  • Supported by adequate consideration. It is best to ask employees to sign a noncompete before they start work, when they accept the position. Employees who are asked to sign a noncompete after their employment has started must be given an additional, non-token benefit, such as a meaningful bonus, salary bump and/or elevated title, as opposed to a gift card or a new title without an accompanying raise. Even though South Carolina is an “at-will” employment state, you cannot legally fire someone for refusing to sign a noncompete agreement.

If the provisions are deficient in any of these areas, a court will disregard the entire agreement.

Steps your business should take

With these factors in mind, employers should:

  • Work with counsel to audit your use of noncompete agreements.
  • Take immediate steps to enforce your rights if you suspect that any employee is in violation. “Selective enforcement” will weigh against you and could frustrate efforts to apply your noncompetes in other situations.
  • Work with counsel to send a “cease and desist” letter setting forth your rights, the employee’s breaches, the injuries you have or may suffer, and what you want the employee to do now.
  • If this letter does not help, consult with counsel and consider formal legal proceedings. Litigation can be costly, so it should be a last resort. However, fighting to enforce your rights now can send a powerful message – to employees, past and present, as well as competitors – that you will defend what you have worked so hard to gain.

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