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Non-Compete Issues

One growing area of employment law involves disputes between an employer and a competing former employee. Many employees who seek to compete with their current or former employer find themselves in trouble because they fail to understand the full range of issues that arise. For example, just because you believe your future job or business will not violate terms of a non-compete agreement, doesn’t mean that you do not have to seriously consider whether you can or have operated without using the employer’s “trade secrets.” In addition, while employed, there are strict rules on what an employee may not do as a result of common law duties of loyalty.

There are no set rules to which one can turn for all situations in order to determine what steps you may take with an eye towards competing, or what you may do without running afoul of the various laws covering this area. Each situation has to be examined under its own unique facts.

Covenants not to compete are enforceable in South Carolina if deemed reasonable under the circumstances. In order to be enforceable, they must be:
1) supported by valuable consideration;
2) necessary to protect the legitimate interests of the employer;
3) reasonably limited in operation with respect to time and place;
4) not unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a livelihood; and
5) reasonable from the standpoint of sound public policy.

Other than these general principles, it is not possible to provide general guidance on what is considered enforceable as each case must be evaluated according to its unique facts. For example, whether there is “consideration” (a legal term meaning something of value) to support the covenant or whether the employer breached obligations to the employee before the separation from employment are issues that frequently arise and may affect the outcome of the case. The nature of the market involved also is a key issue that must be examined under the particular facts of the situation to see if a covenant is too broad.

There are several key issues most judges also will look at in determining whether to enforce a covenant which are not necessarily factors mentioned in the law books. These include:
  • The circumstances under which the employee is no longer with the employer (i.e. did he or she quit voluntarily);
  • Whether there is evidence that the employee engaged in wrongdoing in seeking to “steal business” in a way that is wrongful;
  • Whether the covenant is restricted to the customers or clients with which the employee dealt, or is the employer seeking to just “wall off” a market for competitive purposes; and
  • Whether the employee has experience and knowledge gained either prior to the employment at issue or through means available to anyone (or whether he or she only is able to compete because of his or her access to information provided by the employer).
Even if there is no written agreement, employers have significant protections for their “trade secrets” under South Carolina law. There are two important points to remember when considering whether to compete with a current or a former employer:
(1) the employee must be mindful of all the potential legal issues and not just those that may be part of a written agreement; and
(2) each situation is unique and those who succeed typically obtain counsel and advice before taking steps to compete with their employer.

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