South Carolina Lawyer
SC Lawyer, November 2008, #5.
Eroding Disfavor of Non-competes and the Inevitable Disclosure Doctrine in South Carolina
South Carolina LawyerNovember 2008Eroding Disfavor of Non-competes and the Inevitable Disclosure Doctrine in South CarolinaBy Kevin R. EberleAgreements that limit the ability of the public to enjoy the services of a provider have been begrudgingly tolerated in South Carolina when they can withstand a very strict review. During the last several years, however, there has been a slight movement towards enforcement. South Carolina courts have, for instance, limited the types of contract terms to which strict review is applied in the first place.
The next step towards a pro-employer position might well come when South Carolina courts confront the doctrine of inevitable disclosure. If adopted in South Carolina, the theory would permit employers to enforce a sort of judicially created non-compete agreement. Employers would be able to prevent workers from competing while avoiding many of the traps that invalidate many non-compete agreements. Indeed, employers might make a case against competition even in the absence of any contractual term at all.
The turning tide in South Carolina
The first South Carolina case that addressed the test for non-compete agreements was Carroll v. Giles, 9 S.E. 422 (S.C. 1889). The plaintiff, Carroll, and defendant barber, Giles, agreed that Carroll would supply a barbershop at which the barber would work. The barber agreed in writing: "[I]n consideration of the shop being furnished for his use, he binds himself, and hereby agrees not to do any work, now or hereafter, outside of the shop owned by H.W. Carroll, or hire to any party or parties, or open a shop of any kind to carry on the barber business, either directly or indirectly, in Bennettsville, S.C. He hereby agrees to convey all patronage extended to him heretofore to the business owned by H.W. Carroll." Id. at 422 (emphasis added). When the barber quit, the shop owner sued for an injunction and for damages. The barber contended the term was supposed to last only as long as the business relationship lasted; an indefinite term would create a monopoly in the town in violation of public policy. The court recognized the following test: "[Contracts in partial restraint of trade] must be partial with respect to the territory included; reasonable with respect to the amount of territory, the circumstances and rights of the party burdened, and the one benefited by the restriction, and the number and interests of the public, whose freedom of trading is circumscribed; and made upon a valuable and sufficient consideration." Id. at 423.
Since that first discussion, South Carolina has, in scores of cases, expressed its reluctant willingness to enforce non-compete agreements only when reasonable. E.g., Moser v. Gosnell, 513 S.E.2d 123, 125 (S.C. Ct. App. 1999) ("Generally, covenants not to compete are looked upon with disfavor, examined critically, and strictly construed."). In a series of cases, the S.C. Court of Appeals and the S.C. Supreme Court have interpreted various prongs of the test and teased out meanings and limitations that have limited the possible reach of non-competes. See, e.g., Stonard, Inc. v. Carolina Flooring Specialists, 621 S.E.2d 352 (S.C. 2005) (recognizing availability but declining to use the blue-pencil rule on the facts of the particular case); Rental Uniform Serv. of Florence, Inc. v. Dudley, 301 S.E.2d 142 (S.C. 1983) (holding that mere continuation of existing employment is not sufficient consideration to support a non-compete agreement).
The next step
One of the more interesting doctrines to develop in the field of restraints on competition during the last several years is...