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Occasionally, an employer may conclude that it is in its best interests to try to limit employees from engaging in post-employment conduct harmful to its business. This is commonly done with agreements which restrict former employees from diverting business or co-workers, or using or disclosing proprietary and confidential business information. Agreements which contain such “restrictive covenants” are sometimes referred to as “non-compete agreements.” 

The field of non-compete agreements has faced quite a few legal challenges and limiting trends in the last few years.  Also, the extent to which an employer can use non-compete agreements is heavily dependent on the state where the employer and the employees are located. It is important for employers to understand what terms are currently acceptable where they are located and how the law may change. 

What is a non-compete agreement?

The term “non-compete agreement” refers to an agreement containing one or more covenants restricting post-employment activities.  One such covenant would restrict a former employee from engaging in the same kind of work for himself or another employer within a “reasonable” geographic area during a specific “reasonable” period. What is reasonable to a court is met with the very unsatisfying answer, “it depends.” Other typical restrictive covenants create prohibitions on the solicitation of customers or employees.   

State laws

South Carolina courts evaluating the validity of non-compete agreements look to several factors, including whether the restrictions are necessary to protect the employer’s legitimate business interests (typically confidential business information or valuable business relationships); whether the restrictions are unduly harsh in preventing the employee from making a living; and whether the restriction, which is a restraint on trade, violates public policy. All restrictive covenants must be supported by valuable consideration which, for new hires, is the employment itself, and for existing employees, is something else of more than nominal value (e.g., promotion, raise, bonus, etc.).  South Carolina courts evaluate these factors on a case-by-case basis. 

Agreements restricting competition after employment are highly disfavored across the country and courts will strictly construe them against the employer. In fact, four states — California, North Dakota, Oklahoma, and Minnesota — have complete bans on non-compete agreements in the employment context. Other states — including New York, Ohio, and Washington — have legislation pending to ban non-competes. Many other states have limits on non-competes, including salary thresholds, or outright bans for certain classes of employees, such as medical workers. 

Federal agencies

Two federal agencies likewise have attempted to ban such agreements nationwide. 

For, example, in May 2023, the National Labor Relations Board (NLRB) issued an official opinion, in the form of a General Counsel memorandum, that non-compete agreements entered into by non-managerial employees violate the National Labor Relations Act (NLRA). Most view the NLRB, an independent federal agency tasked with enforcing the NLRA, as focused only on issues related to union organizing and  collective bargaining. The NLRA also protects employee rights to improve their working conditions regardless of the employee’s union sentiment. 

While a General Counsel memorandum is not binding law, it helps illustrate the NLRB’s broad stance at that time on the laws it enforces and its willingness to pursue legal retribution against employers who violate its interpretation of the NLRA. 

The NLRB’s crusade to essentially ban non-competes nationwide was met with swift opposition by President Trump’s administration. On Jan. 27, 2025, President Trump terminated the NLRB’s General Counsel, Jennifer Abruzzo, the author of the memorandum mentioned above. On Feb. 4, 2025, President Trump appointed William Cowen as the new NLRB General Counsel. On Feb. 14, General Counsel Cowen immediately rescinded a number of General Counsel memoranda, including those concerning non-compete agreements. 

Thus, at the moment, the NLRB’s stance is that the validity of non-competes is left to the states to decide. 

The Federal Trade Commission (FTC) is the second federal agency to attack non-compete agreements.  The FTC is a federal agency that protects consumers and promotes fair competition in the workplace. In early 2024, the FTC issued its “Final Rule” on the validity of non-compete agreements and held that such agreements violate federal law. It required all employers to notify their employees that any existing non-compete agreements were now unenforceable. 

Similar to the NLRB’s stance, the FTC’s ruling has faced opposition. In August 2024, District Courts in both Texas and Florida ruled that the FTC’s Final Rule exceeded the Commission’s authority and was thereby inoperative. These opinions are on appeal. 

Current Status

Thus, the validity of non-compete agreements is still left to the states to decide. In South Carolina, two bills on non-competes are pending in the General Assembly. The first bill (H. 3332) would prohibit nonprofits with an annual gross revenue exceeding $1 billion from using non-compete agreements. The second bill (S. 46) would prohibit non-compete agreements between an employer and a physician. 

Non-compete agreements have value for some businesses, but South Carolina employers should cautiously limit terms to those which can be easily explained to a court. What are the kinds of trade secrets that are at risk if an employee goes to work for a competitor? Why should customer relationships be protected?  Why should the former employee be excluded from a territory? Why should a former employee not be allowed to call on co-workers to switch jobs? A South Carolina court’s determination of whether a non-compete agreement is reasonable, and thereby enforceable, turns on a very fact-specific inquiry into these matters, so employers should narrowly tailor their agreements to protect legitimate interests. 

Hollis Burnett and Phillip Kilgore are lawyers with the Greenville office of Ogletree Deakins. Ogletree Deakins is a multi-dimensional labor and employment law firm operating in 60 offices in the U.S. and other countries. Burnett and Kilgore draft executive and restrictive covenant agreements, advise clients on the enforceability of existing agreements and litigate legal disputes about such agreements. They are glad to answer any questions about drafting restrictive covenants and  non-compete agreements or address concerns about existing agreements. Feel free to reach them at [email protected] or [email protected].