In President Biden’s recent Executive Order, he encouraged the Federal Trade Commission (FTC) to limit or ban non-compete agreements. Although President Biden’s Executive Order itself does not create new law, his intent is clear. Whether the FTC can or will act on his intent is unclear. Davenport Evans lawyer Brooke N. Schmidt explains recent developments in this area of law.
The regulation of non-compete agreements has always been an exclusive matter of state law. Three states bar them entirely, while a dozen or more place limitations on their use. South Dakota law generally prohibits contracts that restrict trade but has recognized certain exceptions, including non-compete agreements and non-solicitation agreements that last no longer than two years and encompass a reasonable geographic area. Recently, however, even the South Dakota Legislature has recognized exceptions. For example, in the last legislative session a new law was passed that prohibits non-competition clauses for certain health care employees.
This month, the United States Court of Appeals for the Eighth Circuit (with jurisdiction over the federal court in South Dakota) held that a district court erred when it enforced a non-solicitation agreement. A South Dakota employee can agree to not solicit existing customers from an employer for up to two years following the termination of employment.
However, the South Dakota Supreme Court has noted the difference between agreements not to solicit former customers and agreements not to accept unsolicited business. Farm Bureau Life Ins. Co. v. Dolly, 910 N.W.2d 196, 200 (S.D. 2018). Relying on the Dolly decision, the Eighth Circuit struck down the non-solicitation agreement, in part, because it prohibited the former employee from accepting unsolicited business.
Regardless of whether you are defending or challenging a non-compete agreement, Davenport Evans attorneys are here to handle the matter. Contact us at info@dehs.com, 605-336-2880, or find a specific lawyer here.
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the State’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.