Are Your Nonsolicitation Provisions Compliant with the Most Current Law?

December 21, 2015 - Denny P. Major

Those employers who require their employees to execute restrictive covenants need to be aware of a recent South Carolina opinion that implied non-solicitation covenants should be limited to customers with whom the employee had personal contact while he was employed.

On September 15, 2015, the South Carolina District Court issued a preliminary injunction finding that an employer was likely to succeed in showing that its covenant not to solicit former and prospective customers was valid and enforceable because it was limited to former and prospective customers that the employee personally had contact with during his last year of employment. Vessel Med., Inc. v. Elliott, 6:15-cv-00330-MGL, 2015 U.S. Dist. LEXIS 122436 (D.S.C. Sept. 15, 2015). An earlier case had held that covenants prohibiting solicitation of former customers are unenforceable because they “advance no legitimate business interest of [the] former employer.” Fournil v. Turbeville Insurance Agency, Inc., C/A No. 3:07-3836-JFA, 2008 U.S. Dist. LEXIS 116469, *14 (D.S.C. Dec. 30, 2008), adopted at 2009 U.S. Dist. LEXIS 16303 (D.S.C. Mar. 2, 2009). This opinion follows other recent South Carolina district court rulings that hinge on whether a non-solicitation covenant was limited to customers with whom the employee personally had contact during employment. See Fournil, 2009 U.S. Dist. LEXIS 16303, at *13; Indus. Packaging Supplies, Inc. v. Martin, C.A. No. 6:12-713-HMH 2012 U.S. Dist. LEXIS 43580 (D.S.C. Mar. 29, 2012).

Restrictive covenants enforceability depends on:

is necessary for the protection of the legitimate interest of the employer,
is reasonably limited in its operation with respect to time and place;
is not unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a livelihood;
is reasonable from the standpoint of sound public policy; and
is supported by valuable consideration.

Rockford Mfg. v. Bennet, 296 F. Supp. 2d. 681, 686 (D.S.C. 2003).

Protection of customers is a recognized legitimate interest of the employer. Id (citing Standard Register Co. v. Kerrigan, 238 S.C. 54, 119 S.E.2d 533 (1961)). “A geographic restriction is generally reasonable if the area covered by the restraint is limited to the territory in which the employee was able, during the term of his employment, to establish contact with this employer’s customers.” Team IA, Inc. at 245 (citing Rental Uniform Serv. Of Florence, Inc. v. Dudley, 278 S.C. 674, 676, 301 S.E.2d 142, 143 (1983)).

South Carolina will also find non-solicitation covenants unreasonable where they broadly prohibit contact with customers of the former employee. To be safe, the employer should either use a geographical limitation or limit the non-solicitation to customers the former employee had contact within a limited period of time before his separation or termination from the employer, ideally twelve to twenty-four months.