As of July 1, 2026, South Dakota employers and business owners face a recalibrated landscape for noncompete agreements as two laws took effect, House Bill 1180 (“HB1180”), codified as SDCL § 53-9-10.1, and Senate Bill 153 (“SB153”), which amended SDCL § 53-9-11.2. Generally, contracts that restrain the exercise of a lawful profession, trade, or business are void unless such restraints fall under narrow exceptions as set forth by South Dakota statutes.
By Summer Associate Caleb M. Stork and lawyer Brooke N. Schmidt
Limiting Noncompetes for “Community Services Providers”
An employee may agree with an employer, at the start of employment or any time during employment, to not compete with their employer after separation as provided for in SDCL § 53-9-11. Because of recent amendments to SDCL § 53-9-11.2, such an agreement may be void when the employee is a “community services provider” and the contract restricts the provider from employment in or providing services to individuals with developmental disabilities. A “community services provider” is defined in SDCL § 27B-1-17 as “any person or entity, whether for-profit or not-for-profit, which receives compensation for providing services to persons with developmental disabilities.”
The practical effect of this change is clear and noncompete provisions, which are signed on or after July 1, 2026, are arguably void for “community services providers.” Employers may still restrict the solicitation of clients or patients, as allowed under the statute.
Validating Noncompetes in Ownership Transfers & Governing Documents
South Dakota law, SDCL § 53-9-10.1, now allows for competition limitations to be agreed upon in “any governing document of a business entity, or as part of a contract for the purchase, sale, or transfer of ownership interest in the entity . . ..” However, such agreement must be limited to a “specified geographic area in which the entity conducts business” and the period cannot exceed “three years from the date of transfer.”
This legal change builds on South Dakota’s previous business-related exceptions to its general prohibition on noncompete clauses, including both the sale of goodwill exception (SDCL § 53-9-9) and partnership dissolution exception (SDCL § 53-9-10). This new law gives business owners another avenue for such agreements to be made. While SDCL § 53-9-10.1 may not seem applicable to human resource professionals, you may want to alert members of your executive leadership team about this matter.
The Takeaway
Business owners and employers alike should review their applicable contracts, draft contracts, ownership-transfer negotiations, and governing documents to determine if such matters require amendments or revisions to best protect their interests.
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is ready to assist clients with employment law matters. To connect with our team, call 605-336-2880, email [email protected], or find a specific lawyer here.