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.