How to Protect Your Interests With Enforceable Covenants Not to Compete
How to Protect Your Interests With Enforceable Covenants Not to Compete
South Carolina is a state that values an individual’s freedom to work. Because of that, it does not look kindly on contracts that try to restrict a person from working.
This can be tricky for employers trying to protect their interests. Many employers require employees to sign covenants not to compete, which are intended to prevent them from taking trade secrets and sensitive information to a competitor and/or staring their own competing company. But if the covenant not to compete isn’t written correctly, it won’t be worth the paper it’s written on. So here’s how to write one that might hold up in South Carolina court – and a couple extra things to think about, too.
Three things to address in your covenant not to compete
The keyword is reasonable. You have to be reasonable about what, when, and where your employee can work after they leave your employ.
1) Scope
The scope of duties cannot be restricted in an unreasonable way. If one of your employees writes the company newsletter, you cannot restrict them from writing anything at all after leaving your company. The scope in that case is simply too broad.
2) Duration
A “safe,” reasonable duration is typically two years. Any longer might cross over into unreasonable territory.
3) Geographic Location
This one’s interesting. Many covenants not to compete contain seemingly innocuous clauses that say something to the effect that the employee cannot work at a similar company within a 50-mile radius. That doesn’t seem that unreasonable at first glance – surely that leaves plenty of potential customers and places to do business – but it is.
You’ll remember from high school geometry that the area of a circle is πr2, which in this case equals over 7,854 square miles (3.14159*50*50). The state of South Carolina is only 32,000 square miles. Not so reasonable now, is it? A full quarter of the state is now off-limits. Even a 10-mile radius essentially covers all of Charleston County.
There’s no hard-and-fast rule here about what is considered “reasonable.” You’ll need to use your judgment, and get the advice of a business attorney, to draft a geography clause in your covenant not to compete that’s more likely to hold up in court.
How you, the employer, can protect your interests
As stated above, South Carolina is not known for looking kindly on strict covenants not to compete. But some states are. So a company may add a “forum clause” that says if disputes arise, they’ll be settled in a court in a state like Florida, which is more favorable to employers in these cases.
Another way to protect your interests and keep sensitive information out of competitors’ hands is to focus more on non-disclosure agreements (NDAs) and confidentiality agreements than on covenants not to compete. Because NDAs and confidentiality agreements don’t tend to restrict a person’s freedom to work, the South Carolina Court doesn’t enforce them so heavily in favor of the employee as it does with covenants not to compete. That is, the Court’s decision is likely to be more favorable towards you, the employer, rather than the employee. (The 2012 case Milliken & Company v. Morin set this precedent.)
Get advice on creating your reasonable covenants not to compete
Need help with your contracts, covenants not to compete, and other business documents? Contact business attorney Gem McDowell at their Mount Pleasant office at (843) 284-1021 today.
