The issue of enforceability of non-competes may be headed to the U.S. Supreme Court. Last month, an employer filed a petition for a writ of certiorari (a written request for review) with the Supreme Court, which asks the Court to determine the extent of California’s ability to invalidate non-compete agreements entered into in other states. (California has outright banned non-compete agreements, with narrow exceptions.) There’s no guarantee that the Supreme Court will agree to hear the employer’s request, but even the petition itself provides a good summary of the jurisdictional issues surrounding non-compete agreements in our modern system of commerce and business.
New Jersey Employee Goes to Work for California Company and Seeks to Apply California’s Ban on Non-Competes
In this case, an employee lived and worked in New Jersey for a company that was incorporated in Delaware and was headquartered in either New Jersey, Pennsylvania, or North Carolina (no one could agree exactly which state was the HQ, but all agreed it wasn’t California). Starting in 2016, he worked out of the company’s New Jersey offices, reported to supervisors in New Jersey and Pennsylvania, and traveled occasion to PA, NY, VA, Mass., and California. During his employment, the employee signed multiple non-compete agreements, which were negotiated and signed in NJ and NY. Within those agreements, the employee and company agreed that Delaware law would apply and that any lawsuits between the parties would be filed in Delaware.
In 2022, the employee resigned and went to work for a California-based company, which was a direct competitor of employee’s former employer. The employee continued to work remotely from his home in NJ. The employee immediately engaged in a lawsuit in California, where the employee sought to apply California’s ban on non-compete agreements. The employee argued that his employment with the new California company was sufficient legal basis for the California court to exercise jurisdiction over the lawsuit and the former employer (meaning that the California court has the authority to hear the case and issue decisions about the old employer and the validity of the non-competes). The former employer then filed a separate lawsuit in Delaware, claiming that the employee’s new employment in California breached the employee’s obligations to the NJ employer.
At the same time, the former employer argued in California that the California court had no authority or jurisdiction to hear the case filed in California.
So…Which State Has Jurisdiction/Authority to Hear this Case?
This whole issue turns on the question of jurisdiction, which is about how far a court’s authority extends. We’re seeing arguments about jurisdiction in the news all the time now, as federal judges issue orders (injunctions) that impact the entire country. However, here we’re talking about a state court’s authority over another state. California has banned non-competes, and while many other states have moved towards banning these agreements or at least limiting their enforceability, many other states do allow non-compete agreements to be enforced. South Carolina, for example, disfavors non-competes as a restraint on trade, but the courts will enforce them if they are written carefully, narrowly, and in compliance with the law’s strict requirements (such as reasonably limited in geographic scope and in length of time, etc.). [Read more: Greenville’s Lawyer for Non-Compete Agreements]
In this case, a NJ resident became employed by a California company. Is the employee’s decision to work for a company in California enough for the CA judge to preside over the case? The California judge ruled in May 2024 that the case could proceed in California, which the former employer promptly appealed. After the state supreme court of California declined to overturn that decision in November 2024, the former employer appealed to the U.S. Supreme Court in February, 2025. At this point, the employee has until May 1, 2025 to respond to the former employer’s petition.
After that, we’ll have to wait and see if the U.S. Supreme Court decides to hear the case. If not, then the underlying case in CA will continue forward under California law. I’d guess there’s a decent chance the CA court would invalidate the non-compete agreement.
What Are the Implications for South Carolina Employees and Their Non-Competes?
I wrote this blog post because it highlights the many complexities in non-compete law. I review numerous non-compete agreements each week. [Read more: Want to See What a Garbage Non-Compete Looks Like?] Generally I’m talking with a South Carolina resident, which is why they called me, as I handle non-compete litigation throughout South Carolina. But the non-compete agreement is with a company based in a different state. The company is likely incorporated in Delaware (a very common occurrence). The employee probably never set foot in the company HQ. The agreement often calls for a different state’s law to apply to the contract. And the employee may have agreed to be sued in any one of the possible states. Which state’s law applies? Where is the employee likely to be sued? And what are the South Carolina employee’s legal options?
The outcome of this case, especially if the U.S. Supreme Court picks it up and issues a decision sometime in the next year, will provide more guidance to these questions. Right now, however, South Carolina employees still have the right to file a preemptive lawsuit seeking what’s called a declaratory judgment, thereby asking a SC judge to look at the contract and declare it enforceable or not. In certain cases, SC’s non-compete laws may be more favorable than other state’s. And while SC courts will agree to apply other state’s laws if the parties agreed to that in the contract, the courts will only do so if the other state’s non-compete laws comply with South Carolina law.
My advice, as always, is to have a non-compete lawyer review your non-compete agreement before you sign it. Make sure you understand the far-reaching implications of your decision. Sometimes the short-term again of a higher salary won’t justify the albatross around your neck for the next one to two years.
