Early this year, the Federal Trade Commission (FTC) proposed a new rule that would ban non-compete agreements for employees and independent contractors throughout the United States. Before the comment deadline at the end of April 2023, the FTC received over 27,000 comments about the proposed rule change. At this point, we’re waiting to see if the FTC moves forward with the regulation as it currently reads or if it will make any changes based on the feedback the FTC received.
If this new regulation that bans non-compete agreements goes into effect (and survives the swath of lawsuits that will inevitably be filed by companies), it would mark a huge change in non-compete law, including for South Carolina employees.
The Current State of Non-Compete Law in South Carolina
Non-compete agreements appear in multiple different contexts. The most common for South Carolina employees is an employment contract that the company presents on the first day of work. Or an employee may be given a non-compete agreement to sign later in employment. And I often see them pop up in a severance agreement.
A non-compete provision restricts where (and for whom) an employee can work after leaving his current job. Under South Carolina law, the courts generally look with disfavor upon these types of restrictive covenants because they are a restriction on trade and the ability of the employee to find gainful employment.
However, courts WILL enforce these agreements if they meet several requirements:
(1) Supported by valuable consideration (the employee receives something of value in exchange for the non-compete, such as new employment or a payment of money, like a raise, bonus, promotion, etc.)
(2) Reasonably limited in temporal scope (how many years the non-compete lasts)
(3) Reasonably limited in geographic scope (the physical area that the non-compete covers, like a radius of some amount of miles or a county, state, or country), which normally means the area where the employee had interactions or contact with the company’s customers
(4) Necessary to protect a legitimate interest of the company (just preventing legitimate competition or the loss of a trained employee is not enough)
(5) Not unduly harsh or oppressive in preventing an employee from obtaining replacement employment
(6) And reasonable in light of South Carolina public policy.
If the court finds that all of these requirements are met, then the court will enforce the non-compete agreement. Often a company bringing a breach of contract claim against an employee, the company will also seek a preliminary injunction from the court, which is an order that restricts an employee’s actions and employment while the lawsuit is pending.
Other Bans on Non-Compete Agreements
The FTC is not the only agency with plans to ban non-compete agreements. The National Labor Relations Board (NLRB), which is the federal agency tasked with enforcing the National Labor Relations Act (NLRA), issued an opinion in May 2023 regarding non-compete agreements.
In that opinion, the NLRB takes the position that non-compete agreements could prevent employees from engaging in protected activity under the NLRA, such as concerted activity related to the terms and conditions of employment. Concerted activity just means employees talking together and/or making plans related to the quality or terms of their employment. In this context, the ability of the employees to leave and take other jobs are prevented by a non-compete, and thus that impacts an employe’s protected rights under the NLRA.
Although these NLRB decisions often change if a new national political party takes control of the White House, the current standard effectively bans non-compete agreements if they’re so broadly written that it would restrict an employee’s right to engage in protected or concerted conduct.
Practical Implications of the FTC and NLRB’s Ban on Non-Compete Agreements for South Carolina Employees
Based on the FTC’s ban and the NLRB’s opinion, I’ve started to see new language in severance agreements and employment contracts that specifically state that any non-compete provision (and other provisions like non-solicits and non-disclosures) are not intended limit any rights that the employee possesses under the NLRA and other applicable statutes. Of course, you should normally have an employment attorney review any severance or employment agreement with you before you sign.
However, legally speaking, the FTC ban is still in the rule-making process and is not in effect until at least April 2024. And the NLRB’s opinion may change in the near future based on election outcomes.
As such, I would recommend employees seek out legal advice on any current or new employment agreement, especially if the agreement contains non-compete provisions or other restrictive covenants. Often times these contracts, along with severance agreements, contain problematic provisions that can be negotiated more favorably for the employee.