Restrictive-CovenantOur Charleston commercial litigation lawyer has realized that rapid technological innovation, mobility and the speed such information is able to be circulated in commerce has led businesses both big and small to become increasingly worried about protecting its intellectual property rights through the use of a restrictive covenant.  In an employee-employer situation, businesses struggle to keep their trade secrets hidden after employees leave the employer to go to work for their competitors or to start their own business. Both business organization and South Carolina courts recognize that employee knowledge and mobility increases the chances that vital trade secrets will be misappropriated. A restrictive covenant is a business contract that is developed for an employee so he or she will not engage in certain post-employment activities.

The typical restrictive covenant our Charleston corporate litigation attorneys defend and enforce for our business clients and business professionals include:

South Carolina Public Policy

If a covenant limits or unnecessarily restricts post-employment competitive activities, then it will be disfavored in South Carolina.  There are limited exceptions to this South Carolina public policy, however, when the covenant is necessary to protect the legitimate business interest of employers or entrepreneurs.

Legal Factors Analyzed by South Carolina Courts

  • Is the covenant necessary for the protection of the legitimate interest of the employer;
  • Is the covenant reasonably limited with respect to time and geographic location;
  • Whether the covenant is unduly harsh and oppressive on the employee;
  • Whether the covenant is reasonable from the standpoint of South Carolina public policy; and
  • Whether the covenant was supported by valuable consideration.

It should be noted that South Carolina courts will strictly construe restrictive covenant, such as noncompete agreements.  For instance, South Carolina courts have found that non-competition agreements have the potential to impose unnecessary restraints on trade and post-employment opportunities, thus the agreements are carefully scrutinized and strictly construed.

Our Charleston litigation lawyer recognize that with rapid technological innovation, mobility and the speed in which information is distributed throughout the marketplace, this has led many businesses to become increasingly worried with protecting their intellectual property rights through a restrictive covenant.

A Restrictive Covenant is Carefully Scrutinized

Generally, a restrictive covenant, such as non-compete agreements, are disfavored because they constrain competition in the marketplace and prevent an individual from working in their chosen fields of expertise or starting his or her own business that would be competitive in the marketplace.  The concept of fostering strong competition in the marketplace is a good thing and courts therefore carefully scrutinize restrictive covenant, and traditionally will enforce them in only two situations:

  • When the covenant is contained within an employment agreement, and
  • When the covenant is ancillary to the sale of a business.

The difference between a restrictive covenant connected with an employment agreement or the sale of a business is important because South Carolina courts will apply a stricter standard to an employment agreement than they would to covenants secondary to the sale of a business. The rationale behind these alternative standards is that “a purchaser in the sale of a business context holds more bargaining power than an ordinary employee in an employment context.” Thus, if a covenant not to compete is secondary to the sale of a business, then the covenant must only be reasonable in regards to the time, geographical area and the scope of the prohibited business activity. However, if the covenant is included in an employment agreement, then the party seeking to enforce the covenant must be able to show additional circumstances, such as a near-permanent relationship with his employee’s customers and that, but for his connection with the employer, the former employee would not have had contact with the customers, or the existence of customer lists, trade secrets or other confidential information.