Employee Nondisclosure Agreements in South Carolina: Easily Made, Easily Broken

South Carolina Law Review South Carolina Law Review

Volume 73 Issue 4 Article 12

Summer 2022

Employee Nondisclosure Agreements in South Carolina: Easily Employee Nondisclosure Agreements in South Carolina: Easily

Made, Easily Broken Made, Easily Broken

Samuel C. Williams

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Samuel C. Williams, Employee Nondisclosure Agreements in South Carolina: Easily Made, Easily Broken,

73 S. C. L. REV. 1053 (2022).

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1053

MPLOYEE NONDISCLOSURE AGREEMENTS IN SOUTH CAROLINA:

EASILY MADE, EASILY BROKEN

Samuel C. Williams

I. I

NTRODUCTION ................................................................................... 1053

II. O

VERVIEW OF NONCOMPETE AGREEMENTS IN SOUTH CAROLINA .... 1058

A. History of Restrictive Covenants Generally ................................ 1058

B. Noncompete-Reasonableness Test .............................................. 1061

1. Employer’s Legitimate Interests .......................................... 1062

2. Limited in Time and Place ................................................... 1062

3. Unduly Harsh or Oppressive ............................................... 1063

4. Public Policy ........................................................................ 1063

5. Consideration ....................................................................... 1064

III. E

NFORCEABILITY OF NDAS IN SOUTH CAROLINA ............................. 1064

IV. G

UIDANCE FOR SOUTH CAROLINA EMPLOYERS ................................ 1069

A. The Importance of Definitions .................................................... 1069

B. A Reasonable Time Restriction Will Likely Not Salvage an

Overbroad NDA .......................................................................... 1072

C. Choice-of-Law Concerns ............................................................ 1074

D. Reasonable Efforts to Maintain Secrecy? ................................... 1076

V. C

ONCLUSION ...................................................................................... 1081

I. INTRODUCTION

Businesses often require their employees to sign nondisclosure

agreements, commonly known as NDAs, which restrict employees from using

or disseminating their employer’s proprietary information during and after the

employment relationship.

These agreements can encompass both trade

secrets and contractually protected confidential business information (CBI).

* J.D. Candidate, May 2022, University of South Carolina School of Law; B.A.,

University of North Carolina Wilmington.

1. See Orly Lobel, NDAs Are Out of Control. Here’s What Needs to Change, H

ARV.

BUS. REV. (Jan. 30, 2018), https://hbr.org/2018/01/ndas-are-out-of-control-heres-what-needs-

to-change [https://perma.cc/KW98-Y933].

2. There are three categories of business information that exist on a continuum: (1) trade

secrets, (2) CBI, and (3) “general skills and knowledge.” Orthofix, Inc. v. Hunter, 630 F. App’x

566, 567 (6th Cir. 2015). Trade secrets and CBI, although closely related—and often used

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Surveys and studies show that these agreements are pervasive in the American

workplace.

In fact, by one recent estimate, over half of American workers are

now bound by NDAs.

NDAs are a necessity to employers. Without them, innovation and

economic growth would be stifled.

For example, developing a profitable

interchangeably—are not synonymous. Trade secrets are creatures of state statutory law, while

CBI is a creature of state contract law. South Carolina, along with forty-seven other states, has

adopted the Uniform Trade Secrets Act (UTSA), which defines a “trade secret” as:

information including . . . a formula, pattern, compilation, program, device,

method, technique, . . . or process, . . . that: (i) derives independent

economic value, actual or potential, from not being generally known to,

and not being readily ascertainable by proper means by . . . other person[s]

who can obtain economic value from its disclosure or use, and (ii) is the

subject of efforts that are reasonable under the circumstances to maintain

its secrecy.

S.C.

CODE ANN. § 39-8-20(5)(a) (Supp. 2021). On the other hand, courts and commentators

have struggled to define the contours of CBI, which is frequently identified not by what it is, but

by what it isn’t. See Susan J. Becker, Discovery of Information and Documents from a Litigant’s

Former Employees: Synergy and Synthesis of Civil Rules, Ethical Standards, Privilege

Doctrines, and Common Law Principles, 81 N

EB. L. REV. 868, 975 (2003); Jodi L. Short, Killing

the Messenger: The Use of Nondisclosure Agreements to Silence Whistleblowers, 60 U.

PITT. L.

REV. 1207, 1226 (1999); see also Bernier v. Merrill Air Eng’rs, 770 A.2d 97, 104 (Me. 2001)

(noting that CBI is information “that does not rise to the level of a trade secret but is more than

general skill or knowledge”); Craig P. Ehrlich & Leslie Garbarino, Do Secrets Stop Progress?

Optimizing the Law of Non-Disclosure Agreements to Promote Innovation, 16 N.Y.U. J.L. &

US. 279, 279–80 (2020) (defining CBI as information that “is not quite a trade secret but is not

publicly known either”);

RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 42 cmt. g. (AM.

L. INST. 1995) (stating that NDAs can be used to extend the scope of information protectable by

trade-secret law). Perhaps the most complete definition comes from Robert Unikel, who states

that CBI:

roughly can be defined as data, technology, or know-how that is known by

a substantial number of persons in a particular industry (such that its status

as a technical “trade secret” is in doubt) but that, nonetheless, retains some

economic and /or competitive value by virtue of the fact that it is unknown

to certain industry participants.

Robert Unikel, Bridging the “Trade Secret” Gap: Protecting “Confidential Information” Not

Rising to the Level of Trade Secrets, 29 L

OY. U. CHI. L.J. 841, 844 (1998).

3. See 2 M

ELVIN F. JAGER, TRADE SECRETS LAW § 13:3 (2021) (“Surveys show that a

confidentiality agreement or clause is included in virtually all employment agreements used by

major corporations.”).

4. Natarajan Balasubramanian et al., Bundling Employment Restrictions and Value

Capture from Employees 18 (Nov. 2021) (unpublished manuscript), https://ssrn.

com/abstract=3814403 [https://perma.cc/C9AG-XB5U].

5. Cf. Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 180 (7th Cir.

1991) (Posner, J.) (“The future of the nation depends in no small part on the efficiency of

industry, and the efficiency of industry depends in no small part on the protection of intellectual

property.”). The enforcement of properly tailored NDAs furthers the twin goals of

confidentiality law: preserving commercial morality and encouraging innovation. First, by

punishing actors “who engage in commercially undesirable practices,” and thus increasing their

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client list requires a firm to invest substantial time, money, and manpower.

Absent a way to prevent a free-riding employee from setting up shop across

town and using its client list, the business would be discouraged from

developing such information in the first place.

Moreover, NDAs play a vital

role in any meaningful trade-secret protection plan, as they provide employers

with a low-cost way of safeguarding their proprietary information—the theft

of which can be financially devastating.

These agreements, however, are not without criticism. Some argue that

NDAs are harmful from a public-policy standpoint in that they restrict

employee mobility, suppress speech, and chill creativity.

Employers may be

reluctant to hire a prospective employee covered by an NDA, especially if

“the former employer has a reputation for strictly enforcing its contracts

through litigation.”

And covered employees may be dissuaded from seeking

new employment if they fear they will face liability merely for switching

costs, “confidentiality law attempts to impose a moral code upon the business world with respect

to the procurement of proprietary information.” Unikel, supra note 2, at 846. Second, by

affording legal protection to misappropriation, confidentiality law allows innovators to reap the

full benefit of their innovative activity by decreasing the amount of time, money, and effort they

must expend to protect their developments. Id. at 847–48.

6. See

RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 42 cmt. f. (AM. L. INST.

1995).

7. See Unikel, supra note 2, at 847.

8. The theft of intellectual property is estimated to cost the American economy hundreds

of billions of dollars annually. See T

HE COMM’N ON THE THEFT OF AM. INTELL. PROP., THE IP

COMMISSION REPORT 11 (2013). Merely litigating a trade-secret or breach-of-contract suit

involving the misappropriation of confidential information can cost a firm millions. See Malathi

Nayak, Costs Soar for Trade Secrets, Pharma Patent Suits, Survey Finds, B

LOOMBERG L. (Sept.

10, 2019, 8:01 AM), https://news.bloomberglaw.com/ip-law/costs-soar-for-trade-secrets-

pharma-patent-suits-survey-finds [https://perma.cc/T5Q8-PPFZ].

9. See Lobel, supra note 1; Pat Garofalo, Opinion, How Amazon, Google and Other

Companies Exploit NDAs, N.Y. T

IMES (June 29, 2021), https://www.nytimes.

com/2021/06/29/opinion/nda-amazon-google-facebook.html [https://perma.cc/5B4Q-HXNB]

(arguing that “NDAs impede government accountability and public involvement in economic

policymaking”); Jennifer Elias, Google Contractors Allege Company Prevents Them from

Whistleblowing, Writing Silicon Valley Novels, CNBC (Oct. 1, 2020, 6:02 PM),

https://www.cnbc.com/2020/10/01/google-contractors-allege-ndas-violate-free-speech-laws.

html [https://perma.cc/87DX-WGUL] (discussing NDAs signed by Google contractors

prohibiting them from “talk[ing] about their wages, working conditions, or colleagues”); Sarah

O’Connor, Opinion, The NDA Boom Is Bad for Both Employers and Workers, F

IN. TIMES (Aug.

10, 2021), https://www.ft.com/content/463c917d-c8b5-418d-b8f7-d582747091be [https://

perma.cc/DXL8-TZPG] (discussing NDAs used to cover up sexual harassment).

10. Carol M. Bast, At What Price Silence: Are Confidentiality Agreements Enforceable?,

25 W

M. MITCHELL L. REV. 627, 642–43 (1999).

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jobs.

Such issues will likely become even more prominent now that

Americans are working more jobs in their lives than ever before.

NDAs also raise practical concerns. Just “how does someone take his or

her accumulated experience to a competitor without getting sued?”

Or in the

words of Judge William Alsup, who presided over the infamous Uber–

Waymo trade-secrets case: “Is an engineer supposed to get a frontal lobotomy

before they go on to the next job?”

Finally, NDAs have come under fire in

the wake of the #MeToo movement

and their usage by high-profile public

figures such as former President Donald Trump and Hollywood mogul

Harvey Weinstein.

This Note doesn’t discuss, or make a value judgment as

to the propriety of, NDAs used to settle discrimination or sexual harassment

claims. It instead takes the view that an employer has a legitimate, non-

nefarious reason for using NDAs: preventing former employees from

exploiting its confidences and thereby obtaining a competitive advantage.

Courts across jurisdictions generally agree with this proposition.

But

most courts, including those in South Carolina, are skeptical when an NDA

11. Rex N. Alley, Business Information and Nondisclosure Agreements: A Public Policy

Framework, 116 N

W. U. L. REV. 817, 869 (2021).

12. See Luciana Paulise, Why Millennials and Gen-Z Are Leading the Great Resignation

Trend, F

ORBES (Oct. 26, 2021, 10:09 AM), https://www.forbes.com/sites/lucianapau

lise/2021/10/26/why-millennials-and-gen-z-are-leading-the-great-resignation-trend/?sh=29e64

33c44fe [https://perma.cc/Z73A-Z64L].

13. Camilla A. Hrdy, The General Knowledge, Skill, and Experience Paradox, 60 B.C.

L. REV. 2409, 2416 (2019).

14. Lobel, supra note 1.

15. See, e.g., Emily Otte, Comment, Toxic Secrecy: Non-Disclosure Agreements and

#MeToo, 69 U.

KAN. L. REV. 545, 546–47 (2021); Rebecca Beitsch, #MeToo Has Changed Our

Culture. Now It’s Changing Our Laws., PEW (July 31, 2018), https://www.pewtrusts.

org/en/research-and-analysis/blogs/stateline/2018/07/31/metoo-has-changed-our-culture-now-

its-changing-our-laws [https://perma.cc/TU3V-8PHU]; Emily J. Roth, Is a Nondisclosure

Agreement Silencing You from Sharing Your ‘Me Too’ Story? 4 Reasons It Might Be Illegal,

ACLU (Jan. 24, 2018, 9:45 AM), https://www.aclu.org/blog/womens-rights/womens-rights-

workplace/nondisclosure-agreement-silencing-you-sharing-your-me-too [https://perma.cc/2KK

E-KBLG].

16. See, e.g., Jeffrey Steven Gordon, Silence for Sale, 71 A

LA. L. REV. 1109, 1111–12

(2020).

17. This Note uses the term “NDA” to refer to a nondisclosure agreement that covers

confidential business information or CBI.

18. See, e.g., Milliken & Co. v. Morin, 399 S.C. 23, 37, 731 S.E.2d 288, 295 (2012) (“It

is widely recognized that an employer may ‘restrain a former employee from disclosing and

using confidential information which was developed as a result of the employer’s initiative and

investment and which the employee learned as a result of the employment relationship.’”

(quoting GTI Corp. v. Calhoon, 309 F. Supp. 762, 768 (S.D. Ohio 1969))); Roberson v. C.P.

Allen Constr. Co., 50 So. 3d 471, 475 (Ala. Civ. App. 2010) (“[A]n employer has a protectable

interest sufficient to justify enforcement of a noncompete agreement ‘[i]f an employee [was] in

a position to gain confidential information, access to secret lists, or to develop a close

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covers an employee’s general skill or knowledge instead of just trade secrets

or CBI.

Consider the hypothetical case of ABC Corp., a software company,

and Bob, an IT engineer. ABC Corp. hires Bob and requires him to sign an

employment agreement containing a nondisclosure provision. Bob agrees, if

he is terminated, not to disclose or use at all times any of ABC Corp.’s CBI

that he had access to during his employment. The agreement defines

“Confidential Information” as:

(i) all software (source and object code), algorithms, computer

processing systems, techniques, methodologies, formulae, processes,

compilations or information, drawings, proposals, job notes reports,

records, and specifications, and (ii) all information concerning any

matters relating to the business of ABC Corp., and its customers,

customer contacts, licenses, the prices it obtains or has obtained for

licensing of its software products and services, or any other

information concerning the business of ABC Corp.

After two years of working for ABC Corp., Bob is lured away and hired

by XYZ Corp., a rival software company. He then files a declaratory-

judgment action, arguing the agreement is unenforceable for lack of a

reasonable time or geographical restraint. ABC Corp. counters that the

agreement is narrowly tailored and doesn’t prevent Bob from using either the

skills he developed while working for ABC Corp., or his general knowledge

about the software industry, in his employment with XYZ Corp. Yet for

reasons this Note examines, ABC Corp. would likely be out of luck were this

a real case. This brief hypothetical should give pause to South Carolina

employers who rely on NDAs to protect their hard-earned CBI.

relationship with clients.’” (quoting DeVoe v. Cheatham, 413 So. 2d 1141, 1143 (Ala. 1982)));

ACAS Acquisitions (Precitech) Inc. v. Hobert, 923 A.2d 1076, 1084–85 (N.H. 2007)

(“Legitimate interests of an employer that may be protected from competition include: the

employer’s trade secrets that have been communicated to the employee during the course of

employment; [and] confidential information other than trade secrets communicated by the

employer to the employee, such as information regarding a unique business method . . . .” (citing

Nat’l Emp. Serv. Corp. v. Olsten Staffing Serv., 761 A.2d 401, 404–05 (N.H. 2000))).

19. See, e.g., Carolina Chem. Equip. Co. v. Muckenfuss, 322 S.C. 289, 294, 471 S.E.2d

721, 724 (Ct. App. 1996) (“When an employee leaves a job, he is entitled to take the skills and

general knowledge he has either acquired or increased during his employment with him . . . .”);

Bodemer v. Swanel Beverage, Inc., 884 F. Supp. 2d 717, 735 (N.D. Ind. 2012) (“Indiana courts

seem to be in harmony with other courts that prohibit the use of restrictive covenants to prevent

employees from using general knowledge or experience during future employment.”); Serv.

Ctrs. of Chi., Inc. v. Minogue, 535 N.E.2d 1132, 1135 (Ill. App. Ct. 1989) (“[I]n a society based

on competition, the employee has a right to make use of the general knowledge and skills

acquired through experience in pursuing the occupation for which he is best suited.”).

20. This language is borrowed from Stuber v. CGH Techs., No. 03:07-cv-3094-JFA, 2008

WL 11349816, at *2 (D.S.C. Jan. 29, 2008).

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This Note proceeds in three parts. Part II provides an overview of

noncompete agreements in South Carolina. Part III explores how South

Carolina courts evaluate NDAs in the employer–employee context. Part IV

provides practical guidance to employers like ABC Corp. seeking to ensure

that their NDAs remain legally enforceable.

II. O

VERVIEW OF NONCOMPETE AGREEMENTS IN SOUTH CAROLINA

Before discussing NDAs in detail, an overview of the enforceability of

noncompete agreements in South Carolina is in order. To be sure, the two

types of agreements are conceptually distinct, and “true” NDAs are reviewed

under a less stringent reasonableness standard than noncompete agreements.

But if an NDA is found to be overbroad—either because it encompasses

publicly available information or the general skills and knowledge of the

employee—it will be reviewed under the same standard as a noncompete.

Thus, as one treatise writer has cautioned, “[s]erious problems in contract

interpretation and enforcement will arise if the distinctions between these two

totally different agreements are ignored or blurred.”

A “noncompete agreement” or “covenant not to compete” is simply an

agreement that one individual will not compete against another person or

entity in some capacity.

Such agreements are common in the employment

and sale-of-business contexts.

When used in an employment agreement, an

employee agrees not to engage in a particular line of work after the

employment relationship ends.

In the sale-of-business setting, a seller

usually promises not to work in the same type of business in the same market

as the buyer.

A. History of Restrictive Covenants Generally

Restrictive covenants have a long history, dating back to at least fifteenth-

century England.

Early English common law treated them as per se invalid

21. See discussion infra Part III.

22. See discussion infra Part III.

23. J

AGER, supra note 3, § 13:2.

24. Nancy Morrison O’Connor, “Promises and Pye-Crusts”: State Statutes Threaten

Broadcast Noncompetes, 21 C

OMMC’NS LAW. 3, 3 (2003).

25. Steve D. Shadowen & Kenneth Voytek, Economic and Critical Analyses of the Law

of Covenants Not to Compete, 72 G

EO. L.J. 1425, 1426 (1984).

26. Covenant Not to Compete, B

LACK’S LAW DICTIONARY (11th ed. 2019).

27. Id.

28. See Milton Handler & Daniel E. Lazaroff, Restraint of Trade and the Restatement

(Second) of Contracts, 57 N.Y.U.

L. REV. 669, 721 (1982).

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as conflicting with the operation of the guild system in place at the time.

But

as the principles of laissez-faire took hold and society became more mobile,

eighteenth-century English courts began to distinguish between “general”

restraints, unlimited as to time and place, and “particular” restraints, applying

to specific “places or persons.”

The former remained per se unenforceable,

while the latter were valid if supported by consideration and “just reason.”

American courts would later adopt the English “rule of reason” approach in

the antitrust context.

In the seminal case United States v. Addyston Pipe &

Steel Co., then-Sixth Circuit Judge William Howard Taft famously posited:

[N]o conventional restraint of trade can be enforced unless the

covenant embodying it is merely ancillary to the main purpose of a

lawful contract, and necessary to protect the covenantee in the

29. See id. at 721–723; 1 SALLY SCOGGIN & ANN HUNTRODS, BUSINESS TORTS § 4.02

(2021). The first reported case involving a restrictive covenant appears to be the Dyer’s Case,

decided in 1414. In that case, the court rejected a wool dyer’s attempt to enforce the terms of an

agreement with his former apprentice, under which the former apprentice agreed not to engage

in the dye business in the master’s town for six months following his apprenticeship. In striking

down the agreement, the judge exclaimed, “By God, if the plaintiff were here he would go to

prison until he paid a fine to the King.” Harlan M. Blake, Employee Agreements Not to Compete,

73 H

ARV. L. REV. 625, 636 & n.33 (1960); see also Mark A. Glick et al., The Law and

Economics of Post-Employment Covenants: A Unified Framework, 11 G

EO. MASON L. REV.

357, 360–61 (2002) (discussing the Dyer’s Case). This hostility is understandable when

considering the economic and social conditions of fifteenth-century England:

Skill in a trade was the vital factor in a man’s economic status and it was

obtainable only through apprenticeship to an experienced worker. The

guild system permitted a man to work only in the trade in which he was

apprenticed. Membership in a guild was not easily attained. Travel was

difficult. Strangers were not welcome. If a man couldn’t work at his trade

in his particular locality, he could hardly work at all; might become a

pauper; and the public would be deprived of a worker at a time when the

Black Death had made workmen scarce.

Arthur Murray Dance Studios v. Witter, 105 N.E.2d 685, 691 (Oh. Ct. Com. Pl. 1952). The use

of NDAs, on the other hand, is a relatively modern phenomenon, dating back to the 1970s and

the budding tech industry. EJ Dickson, What, Exactly, Is an NDA?, R

OLLING STONE (Mar. 19,

2019, 6:17 PM), https://www.rollingstone.com/culture/culture-features/nda-non-disclosure-

agreements-809856/ [https://perma.cc/K2XC-LV8C]; Michelle Dean, Contracts of Silence,

OLUM. JOURNALISM REV. (Winter 2018), https://www.cjr.org/special_report/nda-agreem

ent.php [https://perma.cc/6KNX-R7H8].

30. Mitchel v. Reynolds, 24 Eng. Rep. 347, 349 (Q.B. 1711).

31. Id.; see also Maureen B. Callahan, Comment, Post-Employment Restraint

Agreements: A Reassessment, 52 U.

CHI. L. REV. 703, 709–10 (1985) (“The Mitchel v. Reynolds

approach has survived virtually unchanged to the present day.”).

32. See John F. Fischer, A Non-Compete Case Is an Antitrust Case: An Analysis of

Oklahoma’s Postemployment Restraint Law, 72 O

KLA. L. REV. 755, 763 (2020).

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enjoyment of the legitimate fruits of the contract, or to protect him

from the dangers of an unjust use of those fruits by the other party.

Taft observed that certain restrictive covenants—such as those between the

buyer and seller of a business or between an employee and employer—could

be upheld if “reasonably necessary.”

In 1889, the South Carolina Supreme Court first recognized that

“contracts in partial restraint of trade” may be valid if supported by valuable

consideration, limited in geography, and reasonable as to the covenantee,

covenantor, and general public.

Relying on this formulation, the supreme

court in the 1930 case of Metts v. Wenberg upheld a five-year covenant not to

compete ancillary to the sale of a barbering business.

The modern reasonableness test for noncompete agreements has its roots

in Standard Register Co. v. Kerrigan, a case involving a noncompete in the

employer–employee context.

Standard Register, an Ohio manufacturer and

seller of business forms, sought an injunction to prevent Kerrigan, a former

salesman, from violating his covenant not to compete.

Kerrigan had agreed

not to sell to his former accounts, or in the territory where he had performed

his job duties, for two years after leaving his employment.

The court gave

effect to the Ohio choice-of-law provision and ultimately found that the

agreement was valid under Ohio law and didn’t violate the public policy of

South Carolina (the location of Kerrigan’s former accounts) for three primary

reasons.

33. 85 F. 271, 282 (6th Cir. 1898).

34. Id. at 281.

35. Carroll v. Giles, 30 S.C. 412, 417–18, 9 S.E. 422, 423 (1889).

36. 158 S.C. 411, 155 S.E. 734 (1930). Wenberg sold his barbering business to the Metts

brothers and agreed not to “engage in the barber trade directly or indirectly within the City of

Orangeburg” for five years. Id. at 413, 155 S.E. at 734. Wenberg moved away briefly but

returned to Orangeburg two years later to work for a competitor of the Metts. Wenberg argued

the contract didn’t prevent him from working at a barber shop in which he didn’t have an

ownership interest and that interpreting the agreement otherwise “would render [the] contract

unlawful and void as being wholly unreasonable, contrary to public policy, and in unlawful

restraint of trade.” Id. at 413–14, 155 S.E. at 735. The supreme court disagreed. It noted that

whatever the early English common law view may have been, partial restraints of trade would

be upheld if supported by consideration and reasonably limited as to time and territory—i.e.,

“where the time is not more extended or the territory more enlarged than essential for a

reasonable protection of the rights of the purchasing party.” Id. at 415, 155 S.E. at 735. To the

court, these requirements were easily met because valuable consideration had been exchanged

and the five-year time limit and the territory restriction covering Orangeburg’s city limits were

necessary to protect the Metts’ business interests given that Wenberg had been serving his old

customers upon returning to Orangeburg. Id. at 415–416, 155 S.E. at 735.

37. 238 S.C. 54, 57, 119 S.E.2d 533, 535 (1961).

38. Id. at 57–58, 119 S.E.2d at 535.

39. Id. at 58–59, 119 S.E.2d at 535.

40. Id. at 70–72, 119 S.E.2d at 541–42.

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First, the court recognized that Standard Register had a legitimate interest

in preventing Kerrigan from raiding its “stock of customers,” and the fact that

Kerrigan had indeed contacted seventeen of his eighteen former accounts

revealed the restraint was necessary.

Second, the restraint didn’t curtail

Kerrigan’s ability to earn a living because he remained free to sell business

forms to hundreds of other customers in the Greenville area.

Finally, the

covenant didn’t violate the public interest because the local business-form

industry was highly competitive, meaning the public wouldn’t be deprived of

his skills or services.

B. Noncompete-Reasonableness Test

Subsequent decisions synthesized from Standard Register five criteria to

consider when evaluating the reasonableness of a noncompete agreement:

[A] covenant by an employee not to compete with his employer after

the termination of his employment will ordinarily be upheld if it [1]

is necessary for the protection of the legitimate interest of the

employer, [2] is reasonably limited in its operation with respect to

time and place, [3] is not unduly harsh and oppressive in curtailing

the legitimate efforts of the employee to earn a livelihood, [4] is

reasonable from the standpoint of sound public policy, and [5] is

supported by a valuable consideration.

Although the supreme court once suggested that these criteria are to be

weighed against one another,

South Carolina appellate courts routinely treat

them as elements, meaning all five must be satisfied before a noncompete will

be enforced.

41. Id. at 65–66, 119 S.E.2d at 539.

42. Id. at 68–69, 119 S.E.2d at 541.

43. Id. at 69, 119 S.E.2d at 541.

44. E.g., Oxman v. Sherman, 239 S.C. 218, 224, 122 S.E.2d 559, 561–62 (1961).

45. See Almers v. S.C. Nat’l Bank of Charleston, 265 S.C. 48, 56, 217 S.E.2d 135, 139

(1975) (“The ultimate test of reasonableness depends on a sifting and weighing of the individual

of the individual facts of each case.”).

46. Timothy D. Scrantom & Cherie Lynne Wilson, Postemployment Covenants Not to

Compete in South Carolina: Wizards and Dragons in the Kingdom, 42 S.C.

L. REV. 657, 665

n.35 (1991).

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1. Employer’s Legitimate Interests

Broadly speaking, an employer has a legitimate interest in protecting

itself against improper and unfair methods of competition.

Though an

employer has no valid interest in simply preventing competition,

it may seek

to protect existing business relationships

and customer goodwill

and

prevent the dissemination of its trade secrets and CBI.

2. Limited in Time and Place

A territorial limitation is invalid “if it covers an area broader than

necessary to protect the legitimate interest of the employer.”

South Carolina

courts have routinely held that a noncompete’s enforceability is limited to the

territory where the employee worked for the employer.

For instance, the

court in Oxman v. Sherman found a noncompete covering the entire state

invalid where the insurance agent worked only in two counties.

As to time,

there’s no bright-line rule for what’s reasonable, though restrictions of two

and three years have been upheld.

47. See id. at 668.

48. See Hagemeyer N. Am. Inc. v. Thompson, No. 2:05–3425, 2006 WL 516733, at *4

(D.S.C. Mar. 1, 2006).

49. The Supreme Court of South Carolina has expressly recognized that the “most

important single asset of most businesses is their stock of customers.” Standard Reg. Co. v.

Kerrigan, 238 S.C. 54, 66, 119 S.E.2d 533, 539 (1961).

50. See Almers, 265 S.C. at 58, 217 S.E.2d at 140.

51. See Milliken & Co. v. Morin, 399 S.C. 23, 37, 731 S.E.2d 288, 295 (2012).

52. Standard Reg. Co., 238 S.C. at 66, 119 S.E.2d at 539.

53. Id. (“[T]he territorial restraint in a covenant not to compete will . . . be considered

reasonable if the area covered by the restraint is limited to the territory in which the employee

was able, during the term of his employment, to establish contact with his employer’s

customers.”); see Delmar Studios of Carolinas v. Kinsey, 233 S.C. 313, 321, 104 S.E.2d 338,

342 (1958) (“[A] restrictive covenant must bear some relation to the activities of the employee.

It must not restrain his activities in a territory into which his former work has not taken him or

given the opportunity to enjoy undue advantages in later competition with his employer.”);

Hagemeyer, 2006 WL 516733, at *5 (finding noncompete provision covering Georgia

reasonable when the employee was responsible for sales throughout Georgia, North Carolina,

and South Carolina).

54. 239 S.C. 218, 225, 122 S.E.2d 559, 562 (1961).

55. See Standard Reg. Co., 238 S.C. at 68, 119 S.E.2d at 541 (two years); Rental Unif.

Serv. of Florence, Inc. v. Dudley, 278 S.C. 674, 676, 301 S.E.2d 142, 143 (1983) (three years);

Sermons v. Caine & Estes Ins. Agency, 275 S.C. 506, 509, 273 S.E.2d 338, 339 (1980)

(observing that “a limitation of two or even three years may not obnoxious”). Limitations of five

years have been upheld in the sale-of-business setting. See, e.g., Metts v. Wenberg, 158 S.C.

411, 411, 155 S.E. 734, 735 (1930); Cafe Assocs., Ltd. v. Gerngross, 305 S.C. 6, 9, 406 S.E.2d

162, 164 (1991).

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3. Unduly Harsh or Oppressive

Much like the public-policy element, courts rarely discuss this element

“except to say it is necessary to determine whether an employee competition

covenant is enforceable.”

Intuitively this factor would appear to be the most

important given that early common-law cases treated such agreements as per

se unlawful because they denied an individual the “right to exercise his trade

or calling.”

Put differently, the right of every person to pursue his or her

chosen profession was the very interest those cases sought to protect.

While

per se illegality is no longer the prevailing view, a covenant not to compete

will be struck down if it imposes economic hardship on the employee.

Standard Register suggested that courts consider the conditions of the current

labor market, whether the employee will be deprived of “the opportunity of

supporting himself and his family,” and whether the employee will be forced

to relocate or change professions.

4. Public Policy

Besides mentioning the oft-repeated maxim that noncompete agreements

are “looked upon with disfavor”

because of their potential anticompetitive

effects, courts usually gloss over the public-policy element by mentioning it

and briefly discussing it,

or failing to do so altogether.

This element should

theoretically focus on the degree to which society is deprived of the

employee’s skill or productivity.

With that said, in at least two decisions,

56. Scrantom & Wilson, supra note 46, at 672.

57. Standard Reg. Co., 238 S.C. at 59, 119 S.E.2d at 536.

58. Scrantom & Wilson, supra note 46, at 672 & n.79.

59. Standard Reg. Co., 238 S.C. at 68, 119 S.E.2d at 540–41.

60. Id. at 67–68, 119 S.E.2d at 540–41.

61. Almers v. S.C. Nat’l Bank of Charleston, 265 S.C. 48, 51, 217 S.E.2d 135, 136 (1975).

62. See, e.g., Carolina Chem. Equip. Co. v. Muckenfuss, 322 S.C. 289, 295, 471 S.E.2d

721, 724 (Ct. App. 1996).

63. See, e.g., Hagemeyer N. Am. Inc. v. Thompson, No. 2:05–3425, 2006 WL 516733

(D.S.C. Mar. 1, 2006); Dove Data Prods., Inc. v. Murray, No. 4–05–CV–72–25, 2006 WL

463588, at *3 (D.S.C. Feb. 23, 2006).

64. See Standard Reg. Co., 238 S.C. at 69, 119 S.E.2d at 541 (concluding that the restraint

was not “injurious to the public” because “the sale of business forms in the Greenville area [wa]s

highly competitive”). Described as the “loss-to-society rationale” by one commentator, this

concern was very real in pre-industrial England—a time when “the removal of a skilled person

from the work force . . . might have exacted significant social costs” due to a plague-induced

labor shortage. Callahan, supra note 31, at 724. However, this

reasoning isn’t as compelling

today in light of contemporary economic conditions. Id.; see also Outsource Int’l, Inc. v. Barton

& Barton’s Staffing Sols., 192 F.3d 662, 669–70 (7th Cir. 1999) (Posner, J., dissenting) (“The

original rationale [behind the judicial hostility towards noncompete

agreements] had nothing to

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South Carolina appellate courts have analyzed whether the agreement was

“freely entered into by the parties.”

This suggests that the element’s proper

focus is on the contracting process itself (e.g., the parties’ relative bargaining

power and sophistication, whether the agreement was procured through fraud

or duress, and so forth) rather than the agreement’s competitive effects.

5. Consideration

Like any other contract, a noncompete agreement must be supported by

valid consideration. When a restrictive covenant is signed at the inception of

employment, the promise of initial employment is sufficient.

Likewise,

consideration is proper when such agreement is signed at the end of

employment in exchange for severance pay, for example.

“The more

difficult question,” however, “becomes whether continued at-will

employment is sufficient consideration to enforce a covenant entered into

days, months, or even years after the initial employment offer.”

The answer,

at least in South Carolina, is no; continued employment by itself is

insufficient.

Instead, to be enforceable, a restrictive covenant must be signed

in exchange “for a change in the employee’s conditions of employment, such

as a raise, a promotion, or access to confidential information.”

III. E

NFORCEABILITY OF NDAS IN SOUTH CAROLINA

Unlike noncompete agreements, NDAs are not automatically disfavored

since they implicate “restrictions on access to information, rather than

employee movement.”

In this vein, employees bound by NDAs “remain free

to work for whomever they wish, wherever they wish, and at whatever they

do with restraint of trade in its modern, antitrust sense. It was paternalism in a culture of poverty,

restricted employment, and an exiguous social safety net. The fear behind it was that workers

would be tricked into agreeing to covenants that would, if enforced, propel them into

destitution . . . . This fear, though it continues to be cited, . . . has no basis in current American

conditions.”).

65. Wolf v. Colonial Life & Accident Ins. Co., 309 S.C. 100, 109, 420 S.E.2d 217, 221

(Ct. App. 1992); Oxman v. Profitt, 241 S.C. 28, 33–34, 126 S.E.2d 852, 854 (1962).

66. Poole v. Incentives Unlimited, Inc., 345 S.C. 378, 382, 548 S.E.2d 207, 209 (2001).

67. Maura Irene Strassberg, An Ethical Rabbit Hole: Model Rule 4.4, Intentional

Interference with Former Employee Non-Disclosure Agreements and the Threat of

Disqualification, Part II, 90 N

EB. L. REV. 141, 146 (2011).

68. Poole, 345 S.C. at 382, 548 S.E.2d at 209.

69. Id.

70. Strassberg, supra note 67, at 146; see Poole, 345 S.C. at 382, 548 S.E.2d at 209

(holding consideration was sufficient because the employee “received a change in duties, change

in pay, and change in position”).

71. Terry Morehead Dworkin & Elletta Sangrey Callahan, Buying Silence, 36 A

M. BUS.

L.J. 151, 157 (1998).

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wish, subject only to the prohibition against misusing [their employer’s]

proprietary information” in subsequent employment.

For this reason, NDAs

are not strictly construed in favor of employees.

Yet because they are, at

their core, restrictive covenants, South Carolina courts still review them for

reasonableness.

The South Carolina Supreme Court has instructed courts to

consider two of the Standard Register elements when assessing true NDAs—

that is, the restriction must (1) be tailored to protect some legitimate business

interest of the employer and (2) not be overly burdensome or oppressive in

that it limits the employee’s ability to secure future employment.

But not all restrictive covenants that purport to be NDAs are evaluated

under this standard. In evaluating NDAs, South Carolina courts seemingly

engage in a two-step analysis.

A court first delineates the agreement’s

scope.

South Carolina courts look beyond the label given to the particular

agreement and instead look at whether it ends up restricting the employee’s

future employment opportunities.

Essentially, if the purported NDA walks,

swims, and quacks

like a noncompete agreement, it will be evaluated under

the heightened noncompete-reasonableness standard at the second step,

meaning it must be limited as to time and territory.

But if the agreement isn’t

facially overbroad, it will be reviewed under the less searching NDA-

reasonableness standard described above.

A trio of cases highlight South

Carolina’s approach to evaluating NDAs: Carolina Chemical Equipment Co.,

72. Mai Basic Four, Inc. v. Basis, Inc., 880 F.2d 286, 288 (10th Cir. 1989).

73. Milliken & Co. v. Morin, 399 S.C. 23, 39, 731 S.E.2d 288, 296 (2012).

74. Id. at 33, 731 S.E.2d at 293.

75. Id.

76. See Fay v. Total Quality Logistics, LLC, 419 S.C. 622, 630–32, 799 S.E.2d 318, 323–

24 (Ct. App. 2017).

77. Milliken, 399 S.C. at 37–38, 731 S.E.2d at 295.

78. See Carolina Chem. Equip. Co. v. Muckenfuss, 322 S.C. 289, 293–94, 471 S.E.2d

721, 723 (Ct. App. 1996); Fay, 419 S.C. at 631–32, 799 S.E.2d at 324.

79. The “duck test” is a form of abductive reasoning holding that if something “walks

like a duck, swims like a duck, and quacks like a duck, it’s a duck.” Lake v. Neal, 585 F.3d

1059, 1059 (7th Cir. 2009). The so-called “test” has received widespread judicial recognition.

See, e.g., Hussain v. Obama, 718 F.3d 964, 968 (D.C. Cir. 2013) (“Evidence that Hussain carried

an assault rifle given him by Taliban forces while living among Taliban forces near a battle line

fought over by Taliban forces brings to mind the common sense view in the infamous duck

test.”); Sessoms v. Grounds, 768 F.3d 882, 884 (9th Cir. 2014) (“When a suspect says ‘give me

a lawyer,’ that request walks, swims, and quacks like a duck. It is an unambiguous request for a

lawyer, no matter how you slice it.”); United States v. Flores, 888 F.3d 537, 545 (1st Cir. 2018)

(“[T]he Fourth Amendment does not require that an officer rule out potentially innocent

explanations for every piece of evidence before reaching a reasonable conclusion that there is

probable cause to believe that a crime has been committed and that the suspect has committed

it. When it waddles like a duck, quacks like a duck, swims like a duck, and looks like a duck, it

is quite likely to be a duck.”).

80. Milliken, 399 S.C. at 33 n.5, 731 S.E.2d at 293 n.5.

81. See id. at 39, 731 S.E.2d at 296.

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Inc. v. Muckenfuss,

Milliken & Co. v. Morin,

and Fay v. Total Quality

Logistics, LLC.

In Milliken, the supreme court held that the NDA in question was not in

restraint of trade because it was reasonably tailored to protect the employer’s

legitimate interest in restricting the disclosure and use of its CBI.

Morin was

first hired as a research physicist by Millikin.

He signed an employment

agreement containing a confidentiality provision, which defined “confidential

information” as “all competitively sensitive information of importance to and

kept in confidence by Milliken, which becomes known to [Morin] through

[his] employment with Milliken and which does not fall within the definition

of Trade Secret above.”

The agreement prohibited Morin from using or

disclosing Milliken’s CBI for three years after his termination.

As part of his job duties, Morin was tasked with exploring a way to create

a new type of fiber.

Shortly after attending a trade show on Milliken’s behalf

to seek out potential uses for this new fiber, he began drafting a business plan

in hopes of manufacturing the fiber himself.

After Morin resigned and

patented the new fiber, Milliken caught wind of his plans and filed suit for

breach of the confidentiality agreement, among other things.

At trial, the

jury found for Milliken, and the court of appeals affirmed.

The supreme court began its discussion by noting that an employer has a

legitimate interest in preventing former employees from using its confidential

information in later employment.

The court then looked to the language of

the agreement to decide whether it fell within this legitimate business

purpose.

The agreement was narrow enough in the court’s view because it

covered only “(1) competitively sensitive information (2) of importance to

and (3) kept in confidence by Milliken, (4) which [became] known to [Morin]

through his employment with Milliken, and (5) which [was] not a trade

secret.”

In other words, it didn’t encompass publicly available information,

nor did it prevent Morin from using his general knowledge and skills he

82. Muckenfuss, 322 S.C. 289, 471 S.E.2d 721.

83. Milliken, 399 S.C. 23, 731 S.E.2d 288.

84. 419 S.C. 622, 799 S.E.2d 318 (Ct. App. 2017).

85. Milliken, 399 S.C. at 38–39, 731 S.E.2d at 296.

86. Id. at 27, 731 S.E.2d at 290.

87. Id. (alterations added).

88. Id. at 27–28, 731 S.E.2d at 290.

89. Id. at 29, 731 S.E.2d at 291.

90. Id.

91. Id.

92. Id. at 30, 731 S.E.2d at 291.

93. Id. at 37, 731 S.E.2d at 295.

94. Id. at 37–38, 731 S.E.2d at 295.

95. Id. at 38, 731 S.E.2d at 296.

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acquired while working for Milliken.

As a result, the court evaluated the

agreement under the NDA-reasonableness standard and upheld it, finding it

“str[uck] an appropriate balance between protecting [Milliken’s] valuable

interest in its proprietary information and permitting [Morin] to find gainful

employment in his chosen field.”

In contrast, in Muckenfuss, the court of appeals held that a “Covenant Not

to Divulge Trade Secrets,” despite its designation, amounted to an

unenforceable noncompete.

Muckenfuss was one of three shareholders of

Carolina Chemical during the 1980s.

After he was voted out by the other

two shareholders, he sold his stock back to the company under a Stock

Redemption Agreement, which provided, in part:

[Muckenfuss] agrees to not divulge any trade secrets of the

Corporation. Trade secrets means any knowledge or information

concerning any process, product, or customer of the Corporation and

more generally any knowledge or information concerning any aspect

of the business of the Corporation which could, if divulged to a direct

or indirect competitor, adversely affect the business of the

Corporation, its prospects or competitive position.

100

The court subjected the agreement to noncompete scrutiny because it

swept “so broadly that virtually all of the information Muckenfuss acquired

during his employment would fall within its definition.”

101

And because the

agreement lacked a temporal or territorial restriction, it failed to pass muster

at the second step of the analysis.

102

The court also briefly addressed the third

Standard Register element and found that the restraint subjected Muckenfuss,

a high school graduate who had only ever worked in the industrial chemical

business, to undue economic hardship.

103

Similarly, in Fay, the court of appeals held that an NDA was facially

overbroad and unenforceable as against South Carolina public policy after

employing full-blown noncompete-reasonableness review.

104

Fay was hired

by TQL, an Ohio-based motor carrier logistics and brokerage company, in

96. Id.

97. Id. at 39, 731 S.E.2d at 296 (alterations added).

98. Carolina Chem. Equip. Co. v. Muckenfuss, 322 S.C. 289, 293, 471 S.E.2d 721, 723

(Ct. App. 1996).

99. Id. at 291, 471 S.E.2d at 722.

100. Id. at 293, 471 S.E.2d at 723 (alteration in original) (emphasis added).

101. Id. at 296, 471 S.E.2d at 725.

102. Id. at 294, 471 S.E.2d at 723.

103. Id. at 294–95, 471 S.E.2d at 724.

104. Fay v. Total Quality Logistics, LLC, 419 S.C. 622, 633, 799 S.E.2d 318, 325 (Ct.

App. 2017).

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2012 as a “Logistics Sales Account Executive.”

105

Paragraph four of his

employment agreement prevented him from using “Confidential Information”

without TQL’s authorization.

106

Under the agreement, which contained an

Ohio choice-of-law provision, Fay agreed “all information disclosed to [him]

or to which [he had] access during the period of his . . . employment shall be

presumed to be Confidential Information hereunder if there is any reasonable

basis to believe it to be Confidential Information or if TQL appears to treat it

as confidential.”

107

This provision lacked a time restriction and was binding

“at all times” following his employment.

108

Paragraph six added that, if Fay were to work for a “Competing Business

‘in a position similar’” to his job at TQL, it would “necessarily and inevitably

result in [Fay] revealing, basing judgments and decisions upon, or otherwise

using TQL’s Confidential Information to unfairly compete with TQL.”

109

“Competing Business” was defined as “any person, firm, corporation, or

entity that is engaged in the Business anywhere in the Continental United

States.”

110

“Business,” in turn, meant “providing motor transport and related

services, including third-party logistic[s] services, motor freight brokerage

services and supply-chain management services.”

111

Fay was terminated in June 2013 and began working as a broker for a

competitor soon after.

112

After TQL threatened legal action, Fay preemptively

filed suit against TQL seeking a declaratory judgment that the employment

agreement was overbroad.

113

The trial court applied Ohio law and upheld the

agreement, reasoning that its limitations “were no greater than required for

TQL’s protection, did not impose undue hardship on Fay, and were not

injurious to the public.”

114

The court of appeals disagreed and held that the nondisclosure provisions

were, in reality, noncompete provisions because they ended up restricting

Fay’s post-employment mobility.

115

The court came to this conclusion by

reading paragraphs six and four together.

116

Paragraph six provided that by

simply holding a similar position for a business in the same industry, Fay

would “necessarily and inevitably” reveal or use TQL’s CBI—which

105. Id. at 625, 799 S.E.2d at 320.

106. Id.

107. Id. (alterations in original).

108. Id. at 626, 799 S.E.2d at 321.

109. Id. (alteration in original).

110. Id.

111. Id. (alteration in original).

112. Id.

113. Id.

114. Id. at 627, 799 S.E.2d at 321.

115. Id. at 629, 799 S.E.2d at 322.

116. Id. at 630–31, 799 S.E.2d at 323.

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paragraph four prohibited him from doing “at all times” after leaving TQL.

117

Basically, Fay could never work as a broker in the freight transportation

industry again without violating the agreement.

118

Thus, the court determined

the agreement was a de facto noncompete required to have a reasonable time

restriction.

119

Because it didn’t, the court held the entire agreement was

invalid under South Carolina’s public policy.

120

IV.

GUIDANCE FOR SOUTH CAROLINA EMPLOYERS

So far, this Note has provided an overview of noncompete agreements,

NDAs, and the standards for evaluating each under South Carolina law. This

Note now turns its focus to providing practical guidance for employers and

practitioners seeking to ensure the enforceability of their future NDAs.

A. The Importance of Definitions

As with any contract, the importance of careful drafting can’t be

overstated. For starters, cases such as Muckenfuss and Fay elucidate that CBI

shouldn’t be defined so broadly as to include essentially all information an

employee learns during his or her employment. As another example, the

District of South Carolina in Nucor Corp. v. Bell found an NDA facially

overbroad that defined “confidential information,” in part, as “all Inventions

and all other business, technical and financial information [Bell] develop[s],

learn[s] or obtain[s] during the term of [his] employment that relate to . . . the

Company . . . .”

121

The same court did, however, uphold two other Nucor

NDAs that limited the definition of “trade secrets and confidential

information” to “plant design, specifications and layout; equipment design,

specifications and layout; product design and specifications; manufacturing

processes, procedures and specifications; data processing programs; research

and development projects; marketing, pricing, cost and financial data; and

117. Id. at 631, 799 S.E.2d at 323.

118. Id.

119. Id.

120. Id. at 633, 799 S.E.2d at 325.

121. Nucor Corp. v. Bell, 482 F. Supp. 2d 714, 728 (D.S.C. 2007) (alterations in original).

Interestingly, the court held the agreement was unenforceable, not because it lacked a

geographical or temporal restriction, but because it wasn’t supported by adequate consideration.

Id. at 730; see also McGough v. Nalco Co., 496 F. Supp. 2d 729, 756 (N.D. W. Va. 2007) (“By

defining confidential information as essentially all of the information provided to Mr. McGough

during his employment, the nondisclosure covenants amount to a post-employment covenant not

to compete that is completely unrestricted in duration or geographic scope.”); Serv. Ctrs. of Chi.,

Inc. v. Minogue, 535 N.E.2d 1132, 1133 (Ill. Ct. App. 1989) (refusing to enforce NDA that

prohibited the employee from “disclos[ing] or disseminat[ing] any information or material

provided to him” by his employer).

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which have not been made available to the public by Nucor.”

122

As a general

rule, CBI should include only information that isn’t generally known or

publicly available,

123

has some economic value to the employer,

124

and which

doesn’t encompass the general skills and knowledge the employee acquires

during employment.

125

Courts have routinely found that “customer lists,

specific information about customers, and pricing formulas,” for example,

qualify as protectable CBI.

126

Relatedly, employers should avoid using “including, but not limited to”

language or similar catch-all phraseology when defining their CBI.

127

Doing

122. Bell, 482 F. Supp. 2d at 730.

123. See Richard F. Dole, Jr., Limitations Upon the Enforceability of an Employee’s

Covenant Not to Disclose and Not to Use Confidential Business Information Without

Authorization, 23 UCLA

J.L. & TECH. 1, 6 (2019) (“Information that either is or becomes public

implicitly is excluded from the definition of confidential information.”); Ehrlich & Garbarino,

supra note 2, at 279–80 (defining CBI as information that “is not quite a trade secret but is not

publicly known either”); see also T&S Brass & Bronze Works, Inc. v. Slanina, No. 6:16-3687-

MGL, 2016 WL 11201768, at *7 (D.S.C. Dec. 20, 2016) (holding NDA was “carefully tailored

to avoid interfering with the defendants’ ability to work in their chosen field” because its

definition of CBI did not include “general skills, experience or information that is generally

available to the public, other than information which has become generally available as a result

of Employee’s direct or indirect act or omission”).

124. See R

ESTATEMENT OF EMPLOYMENT LAW § 8.07 cmt. b (AM. LAW. INST. 2015)

(“Courts will generally protect nonpublic commercial information that provides a clear

economic advantage to the employer by virtue of its confidentiality, provided that the restrictive

covenant is otherwise reasonable . . . and the information has been treated as confidential by the

employer.”); see also Milliken & Co. v. Morin, 399 S.C. 23, 27, 731 S.E.2d 288, 290 (2012)

(enforcing confidentiality agreement defining CBI as “all competitively sensitive information of

importance to and kept in confidence by [the employer], which bec[ame] known [by the

employee] through [his] employment” and was not a trade secret).

125. See RESTATEMENT OF EMPLOYMENT LAW § 8.07 cmt. b (AM. LAW. INST. 2015) (“An

employer cannot protect as confidential any information in which it does not have a protectable

interest, such as information that has entered the public domain and information that would be

considered part of the general experience, knowledge, training, and skills that an employee

acquires in the course of employment.”); see also Herring v. Lapolla Indus., Inc., No. 2:12-CV-

2705-RMG, 2013 WL 12148850, at *3 (D.S.C. Nov. 26, 2013) (“At the heart of this dispute is

whether the provision forbids Herring from using his general knowledge, skills, and experience

in later employment because the parties agree that, if the provision does so, it would be invalid

under South Carolina law . . . .”); Williams v. Unum Grp. (Corp.), No. 3:17-cv-01814-CMC,

2017 WL 10756823, at *15 (D.S.C. Oct. 18, 2017) (“South Carolina does not appear to impose

any stringent rules for defining what constitutes ‘confidential’ information subject to such an

agreement so long as it does not preclude the former employee from using his general skills and

knowledge.”).

126. Dole, Jr., supra note 123, at 5 n.30.

127. See Carlson Grp., Inc. v. Davenport, No. 16-cv-10520, 2016 WL 7212522, at *4 (N.D.

Ill. Dec. 13, 2016) (“Although [the NDA] itemizes particular information in which TCG likely

has a protectable interest (e.g., customer ‘contract terms’), and excludes information ‘generally

known to [TCG’s] competitors,’ the broad catch-all language (‘of or concerning’ TCG's

business), without further limitation, calls into question its enforceability.” (second alteration in

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so may make it impossible for a court to determine the bounds of the

information protected, which, in turn, could result in the entire NDA being

invalidated. Herring v. Lapolla Industries

128

illustrates this point. In 2008,

Herring was hired as a sales manager by LaPolla, a manufacturer and supplier

of spray polyurethane foam.

129

Herring’s employment agreement prevented

him from “divulg[ing], communicat[ing], or us[ing] in any way, any

Confidential Information (as hereinafter defined) pertaining to the business of

the Company.”

130

The agreement added:

the term “Confidential Information” includes, but is not limited to,

information disclosed to the Employee or known by the Employee as

a consequence of or through his employment by the Company

(including information conceived, originated, discovered or

developed by Employee) prior to or after the date hereof, and not

generally known, about the Company or its business.

131

In 2012, Herring resigned from Lapolla and filed suit in South Carolina

federal court, seeking a declaratory judgment that the employment agreement

was unenforceable.

132

Because the agreement contained a Texas choice-of-law provision, the

court looked to Texas contract-law principles to determine its construction yet

noted that South Carolina’s public policy would ultimately dictate whether it

was enforceable within the state.

133

The court reasoned that if “Confidential

Information” wasn’t limited to information shared with or known by Herring

original)); HCC Cas. Ins. Servs., Inc. v. Day, No. 20 C 7620, 2021 WL 1165096, at *7 (N.D. Ill.

Mar. 26, 2021) (“Certainly, HCC likely has an interest in keeping the enumerated types of

information confidential. The [NDA], however, expressly states that ‘[c]onfidential

[i]nformation includes, but is not limited to’ these specific categories of information, and thus,

does not actually limit the reach of the broad preceding language ‘any information . . . that relates

to any aspect of’ HCC's business.” (first alteration added)); CleanFish, LLC v. Sims, No. 19-cv-

03663-HSG, 2020 WL 4732192, at *4 (N.D. Cal. Aug. 14, 2020) (holding, in a trade-secret case,

that “by employing ‘including but not limited to’ language within the definition of ‘Trade

Secrets,’” the employer made it impossible to ascertain “what is and is not protectable”); cf.

Memorandum from Stewart Schwab, Reporter, to Noncompete Drafting Committee Members

and Observers 2 (Nov. 2, 2020) (noting that such language “might suggest that virtually any

private information can be protected as confidential information, which goes against the ethos

of the [Uniform Noncompete Agreement] Act, which is to limit the use of restrictive covenants

to situations where an employer’s legitimate interests (other than limiting competition) need

protection”).

128. Herring, 2013 WL 12148850.

129. Id. at *2.

130. Id.

131. Id. (emphasis added).

132. Id. at *1.

133. Id. at *2.

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resulting from his employment with Lapolla, it arguably included some

information he knew and learned of apart from his job.

134

If this were the case,

the agreement would be void under both Texas and South Carolina law

because it would prevent Herring from using his general knowledge, skills,

and experience in future employment.

135

The interpretation problem was

compounded, in the court’s view, because the agreement expressly precluded

Herring from “divulg[ing] . . . any Confidential Information (as hereinafter

defined) pertaining to the business of the Company.”

136

As a result, the court

reasoned it was prohibited from looking to the common usage of the term

“confidential information” because the agreement’s plain language provided

otherwise.

137

Thus, because it wasn’t “‘definite, certain[,] and clear’ what

information [wa]s protected by the non-disclosure provision,” the provision

was unenforceable against Herring.

138

B. A Reasonable Time Restriction Will Likely Not Salvage an

Overbroad NDA

Recall in Fay that the South Carolina Court of Appeals held the purported

NDA was a de facto noncompete agreement and was thus subject to

heightened scrutiny.

139

The court also held the agreement was unenforceable

as a matter of public policy because it lacked any sort of time restriction.

140

By implication, such an agreement may well be enforced despite an overbroad

definition of CBI if it contains a reasonable time limitation, right? As

discussed earlier, South Carolina courts have routinely enforced noncompete

agreements containing time restrictions of up to three years.

141

In all

likelihood, however, an overbroad NDA with a reasonable time restriction

would still likely fail for another reason: the lack of a geographical restriction.

This may seem counterintuitive at first glance. Including a geographical

limitation in an NDA “defeat[s] the entire purpose of restricting disclosure,

since confidentiality knows no temporal or geographical boundaries.”

142

this end, South Carolina District Court Judge David Norton has recognized:

134. Id. at *3.

135. Id.

136. Id. at *2 (emphasis added).

137. Id. at *4.

138. Id. (quoting Kanan v. Plantation Homeowner’s Ass’n Inc., 407 S.W.3d 320, 330 (Tex.

App. 2013)).

139. Fay v. Total Quality Logistics, LLC, 419 S.C. 622, 632, 799 S.E.2d 318, 324 (Ct.

App. 2017).

140. Id. at 633, 799 S.E.2d at 325.

141. See cases cited supra note 55.

142. Bernier v. Merrill Air Eng’rs, 770 A.2d 97, 104 (Me. 2001) (quoting Revere

Transducers, Inc. v. Deere & Co., 595 N.W.2d 751, 761 (Iowa 1999)).

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As . . . intangible goods, trade secrets are not bound by geography. If

[an employer] drafted a non-compete provision that contained a

geographic limitation, former employees could comply with the non-

compete while sharing [the employer’s] trade secrets with its

competitors outside of the geographic area. The competitors could

then use those trade secrets to [the employer’s] detriment by engaging

in direct competition or by further disseminating [the employer’s]

proprietary information, thus making a geography-based provision

completely ineffective.

143

Even so, once an NDA is found to be overbroad (meaning it covers more than

CBI and prevents the employee from using his or her general knowledge, skill,

and experience in subsequent employment)

144

and is thus subject to a

noncompete analysis, it will almost certainly be found to be unenforceable.

The reasons underlying this conclusion are threefold. First, absent an

express geographic restriction, the limitation will presumed to be

worldwide.

145

Second, it’s well established under South Carolina law that a

covenant not to compete’s enforceability is limited to the geographic area

where the employee worked for the employer.

146

Third, South Carolina courts

will not “blue pencil” an indivisible restrictive covenant or add a nonexistent

geographic restriction to make a covenant enforceable.

147

True, it might be

143. Lampman v. Dewolff, Boberg & Assocs., Inc., No. 2:06-CV-00062-DCN, 2007 WL

9728566, at *6 (D.S.C. Sept. 26, 2007). South Carolina law expressly provides that a contractual

provision creating a duty not to disclose a trade secret “must not be considered void or

unenforceable or against public policy for lack of a durational or geographical limitation.” S.C.

CODE ANN. § 39-8-30(D) (Supp. 2021).

144. See Nucor Corp. v. Bell, 482 F. Supp. 2d 714, 729–30 (D.S.C. 2007).

145. See Creative Snacks, Co. v. Hello Delicious Brands LLC, No. 1:17CV50, 2017 WL

4043564, at *3 (M.D.N.C. Sept. 12, 2017) (“Conspicuously absent from . . . the Supply

Agreement is any specific geographic region within which its prohibitions exist. Because there

is no limitation, the geographic restriction is worldwide.”). But see Market Am., Inc. v.

Christman-Orth, 520 S.E.2d 570, 578 (N.C. Ct. App. 1999) (“[T]he non-competition covenant

contains no fixed geographic restriction, but given that Market America is a national company,

it is likely that the covenant is intended to reach the entire United States.”).

146. See discussion supra Section II.B.2.

147. “Blue penciling” is the process by which “a court of equity will take notice of the

divisions the parties themselves have made [in a restrictive covenant], and enforce the

restrictions in the territorial divisions deemed reasonable and refuse to enforce them in the

divisions deemed unreasonable.” Welcome Wagon Int’l, Inc. v. Pender, 120 S.E.2d 739, 742

(N.C. 1961). Thus, a court can use its blue pencil only “if the offending provision is neatly

severable.” Deutsche Post Glob. Mail, Ltd. v. Conrad, 116 F. App’x 435, 439 (4th Cir. 2004).

This approach can be illustrated through the following example. Assume an employee worked

only in counties A and B, yet her employment agreement restricted her from working in counties

A, B, C, and D post-employment. A blue-pencilling court could strike through counties C and

D and uphold the rest of the agreement. But if the agreement instead prevented the employee

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conceivable, based on this reasoning, that an overbroad NDA between a

worldwide corporation doing business on every continent and one of its

executives may still be enforceable.

148

But the South Carolina Supreme Court

has suggested that failing to include a geographical limitation renders a

noncompete per se unreasonable, no matter the geographical scope of the

employment relationship.

149

At any rate, given that South Carolina courts

view noncompete agreements with considerable caution, an NDA found to be

overbroad will likely be struck down on public-policy grounds for lacking a

reasonable geographic restriction.

150

As this discussion makes clear, a finding of overbreadth is essentially

dispositive. Employers must therefore take care to draft their NDAs narrowly

and cover only CBI capable of protection to prevent a court from engaging in

the heightened noncompete review at the second step.

C. Choice-of-Law Concerns

Employers should also be aware of South Carolina’s choice-of-law rules

when drafting NDAs. South Carolina follows the traditional lex loci

from working within a 200-mile radius of her employer’s headquarters—covering a territory

greater than where she performed her job duties in counties A and B—a strict blue-pencilling

court would invalidate the entire agreement because the restriction could be amended only by

adding new language identifying a smaller geographical area. Though the case law is somewhat

muddled, blue penciling may be permissible under South Carolina law if the covenant is clearly

divisible. See generally Miranda B. Nelson, Note, Sharpening South Carolina’s Blue Pencil: An

Argument for Codifying a Strict Interpretation of the Blue-Pencil Doctrine, 70 S.C.

L. REV. 917

(2019). In any event, what’s clear is that South Carolina law categorically prohibits

reformation—or adding wholly new contract language. See Poynter Invs. v. Century Builders of

Piedmont, 387 S.C. 583, 588, 694 S.E.2d 15, 18 (2010) (“[I]n South Carolina, the restrictions in

a non-compete clause cannot be rewritten by a court or limited by the parties’ agreement, but

must stand or fall on their own terms.”).

148. See Victaulic Co. v. Tieman, 499 F.3d 227, 237 (3d Cir. 2007) (“In this Information

Age, a per se rule against broad geographic restrictions would seem hopelessly antiquated, and,

indeed, Pennsylvania courts (and federal district courts applying Pennsylvania law) have found

broad geographic restrictions reasonable so long as they are roughly consonant with the scope

of the employee's duties.”); Superior Consulting Co. v. Walling, 851 F. Supp. 839, 847 (E.D.

Mich. 1994) (“[A]n agreement [lacking a geographical restriction] can be reasonable if the

employer actually has legitimate business interests throughout the world.”); Sigma Chem. Co.

v. Harris, 586 F. Supp. 704, 710 (E.D. Mo. 1984) (finding worldwide application of noncompete

reasonable where the employer operated on a worldwide basis).

149. See Stonhard, Inc. v. Carolina Flooring Specialists, Inc., 366 S.C. 156, 161, 621

S.E.2d 352, 354 (2005) (“The absence of a geographical limitation makes the agreement void as

a matter of law.”); see also Int’l Safety Access Corp. v. Integrity Worldwide, Inc., No. 0:09–cv–

00315–MJP, 2010 WL 11552932, at *2 (D.S.C. Oct. 27, 2010) (following Stonhard and holding

noncompete was “per se unreasonable because it [wa]s geographically boundless”).

150. E.g., Rental Uniform Serv. of Florence, Inc. v. Dudley, 278 S.C. 674, 675, 301 S.E.2d

142, 143 (1983) (“Restrictive covenants not to compete are generally disfavored and will be

strictly construed against the employer.”).

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contractus rule. This means that the substantive law of the state where the

contract was formed will be applied in disputes over the contract’s formation,

interpretation, or validity.

151

South Carolina courts will also generally honor

choice-of-law provisions.

152

But a choice-of-law provision will not be given

effect if applying the other state’s law would violate South Carolina’s public

policy.

153

Questions are thus raised in the restrictive-covenant context where

the chosen jurisdiction’s law permits blue penciling or contract reformation

and the agreement at issue is found to be overbroad by a South Carolina court.

In Stonhard, Inc. v. Carolina Flooring Specialists, Inc., the South

Carolina Supreme Court considered the effect of a New Jersey choice-of-law

provision in a noncompete agreement lacking a geographical limitation.

154

The court noted that New Jersey law permits courts to decrease an overly

broad geographical restriction to make a noncompete agreement enforceable

but failed to find a case in which a court applying New Jersey law added a

previously nonexistent geographical term.

155

Ultimately, the court concluded

that, even if the agreement could properly be reformed under New Jersey law

in this way, the agreement would still be unenforceable because adding a new

term not agreed upon by the parties violates South Carolina’s public policy.

156

Stonhard and subsequent cases

157

make clear that employers can’t rely on

a South Carolina court to reform a defective noncompete agreement

containing a non-South Carolina choice-of-law provision. It follows from

these cases, and Fay in particular, that an overbroad NDA lacking a

geographical or temporal restriction, which is found to be a de facto

noncompete under the chosen state’s law, will not be reformed by a South

Carolina court even if doing so would be permissible under the law of the

other state. Because South Carolina’s use of the public-policy “escape

151. Witt v. Am. Trucking Ass’n, 850 F. Supp. 295, 300 (D.S.C. 1994).

152. Nucor Corp. v. Bell, 482 F. Supp. 2d 714, 728 (D.S.C. 2007).

153. Id.

154. 366 S.C. 156, 621 S.E.2d 352.

155. Id. at 160, 621 S.E.2d at 353–54.

156. Id. at 161, 621 S.E.2d at 354.

157. Poynter Invs. v. Century Builders of Piedmont, Inc., 387 S.C. 583, 588, 694 S.E.2d

15, 18 (2010) (“[I]n South Carolina, the restrictions in a non-compete clause cannot be rewritten

by a court or limited by the parties’ agreement, but must stand or fall on their own terms.”);

Herring v. Lapolla Indus., Inc., No. 2:12-CV-2705-RMG, 2013 WL 12148770, at *3 (D.S.C.

Oct. 7, 2013) (“This Court reads Stonhard, along with the South Carolina Supreme Court's

decision in Poynter, to hold that blue penciling non-compete agreements and enforcing them in

South Carolina violates South Carolina’s public policy because doing so ‘requires this Court to

bind these parties to a term that does not reflect the parties’ original intention.’” (quoting

Stonhard, 366 S.C. at 160, 621 S.E.2d at 354)).

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device”

158

essentially renders choice-of-law provisions worthless,

159

employers should consider using forum-selection clauses in tandem with

choice-of-law provisions in their NDAs to ensure that any potential litigation

will be heard in a jurisdiction that’s more receptive to judicial reformation (or

restrictive covenants in general).

160

D. Reasonable Efforts to Maintain Secrecy?

In a misappropriation-of-trade-secrets claim, a party seeking relief must

show that it took reasonable steps to maintain the information’s secrecy.

161

Whether non-trade-secret CBI is subject to the same reasonable-efforts-to-

maintain-secrecy requirement hasn’t been addressed in South Carolina.

Courts from other jurisdictions have taken differing views. Given that NDAs

are creatures of contract, some courts take a “pure freedom of contract”

approach.

162

Under this view, CBI means whatever the parties agree it means,

158. The vested-rights approach to conflicts-of-law issues is frequently criticized as being

susceptible to judicial manipulation. Judges may employ “escape devices” to avoid outcomes

they perceive as “arbitrary” or “irrational.” Lea Brilmayer & Raechel Anglin, Choice of Law

Theory and the Metaphysics of the Stand-Alone Trigger, 95 I

OWA L. REV. 1125, 1133–34

(2010). Under the public-policy exception, for example, “a court might refuse to apply another

state’s law if that law’s substantive content [i]s profoundly objectionable” to the forum state’s

fundamental values. Id. at 1135.

159. Judge Geathers noted as much in his concurrence in Fay. He contended that the court

should have considered first whether modification was possible under Ohio law before

evaluating the agreement under South Carolina’s public policy. Fay v. Total Quality Logistics,

LLC, 419 S.C. 622, 635, 799 S.E.2d 318, 326 (Ct. App. 2017) (Geathers, J., concurring).

160. For example, Washington law permits courts “to modify a covenant so that it may be

enforced to some extent, rather than invalidating the covenant entirely.” Perry v. Moran, 748

P.2d 224, 230 (Wash. 1987). “Under this rule, a court may modify the covenant even though the

offending portion is grammatically indivisible from the remainder of the covenant.” Armstrong

v. Taco Time Int’l, Inc., 635 P.2d 1114, 1118 (Wash. Ct. App. 1981). Similarly, Florida law

mandates that “[i]f a contractually specified restraint is overbroad, overlong, or otherwise not

reasonably necessary to protect the legitimate business interest or interests, a court shall modify

the restraint and grant only the relief reasonably necessary to protect such interest or interests.”

LA. STAT. ANN. § 542.335(c) (Westlaw through 2022 Second Reg. Sess.) (emphasis added).

161. S.C.

CODE ANN. § 39-8-20(5)(a)(ii) (Supp. 2021).

162. Ehrlich & Garbarino, supra note 2, at 298; Alley, supra note 11, at 832–35 (describing

this methodology as the “Enforcement-as-Written” approach); see also Loftness Specialized

Farm Equip., Inc. v. Twiestmeyer, 818 F.3d 356, 363 (8th Cir. 2016) (“The fact that the parties

made no effort to keep [Twiestmeyer’s] confidential information confidential, however, does

not convince us that the parties intended for the NDA’s protections to end.”); Chemimetals

Processing, Inc. v. McEneny, 476 S.E.2d 374, 377 (N.C. Ct. App. 1996) (enforcing NDA

between a manufacturer and distributor without inquiry into the confidentiality of the formula

at issue). The primary benefits of this approach are that it’s “easy to follow” and “relatively

inexpensive to enforce” and gives effect to the plain meaning of the parties’ agreement as

written. Ehrlich & Garbarino, supra note 2, at 302. The obvious criticism of this approach is

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and courts will give effect to the agreement, whether or not the information is

actually confidential.

163

On the other hand, some courts look beyond the

agreement’s terms and require both that the information sought to be protected

is “actually confidential” and that “reasonable efforts were made to keep it

confidential.”

164

The latter approach would seem to track South Carolina courts’ attitude

of distrust towards restrictive covenants. Its first requirement is elementary—

it’s “hard to see how information could be deemed confidential if its owner

shares it freely” or if the information is generally known to the public.

165

And

as to the second requirement:

If the firm claiming a protectable interest did not think enough of it

to expend resources on trying to prevent lawful appropriation of it,

this is evidence that it is not an especially valuable interest . . . and

that the firm may be trying to dampen competition rather than to

protect a legitimate investment.

166

In such a case, a court undergoing a reasonableness analysis may well be

inclined to determine the agreement is really a noncompete masquerading as

an NDA. At bottom, because there’s significant overlap between trade secrets

and CBI (e.g., both derive value by not being readily known to other industry

participants), South Carolina employers should err on the side of caution and

take at least some steps in maintaining the secrecy of their CBI.

167

that, if applied in the employment context, it would create a bizarre work-around for employers

by allowing them to pass off plainly anticompetitive restrictive covenants—wholly lacking

temporal and geographical restrictions—as enforceable NDAs.

163. Ehrlich & Garbarino, supra note 2, at 298.

164. Tax Track Sys. Corp. v. New Inv. World, Inc., 478 F.3d 783, 787 (7th Cir. 2007) (“An

Illinois court . . . will enforce [an NDA] only when the information sought to be protected is

actually confidential and reasonable efforts were made to keep it confidential. . . . Tax Track

need not show its information rises to the level of a trade secret, but it must nevertheless establish

that it engaged in reasonable steps to keep the information confidential.”); nClosures Inc. v.

Block & Co., 770 F.3d 598, 601–02 (7th Cir. 2014) (looking to both Tax Track and Rockwell

Graphic Sys. Inc. v. DEV Indus., Inc., 925 F.2d 174, 180 (7th Cir. 1991), a misappropriation-of-

trade-secrets case, and holding plaintiff’s NDA was unenforceable because it failed to take

reasonable steps to protect the confidentiality of its propriety information); Unisource

Worldwide, Inc. v. S. Cent. Ala. Supply, LLC, 199 F. Supp. 2d 1194, 1208 (M.D. Ala. 2001)

(applying Arkansas trade-secret law and holding the NDA was enforceable, in part, because the

plaintiff used passwords to protect its CBI). Alley, supra note 11, at 839–42, describes this

approach as “Close-Look Reasonableness.”

165. Food Mktg. Inst. v. Argus Leader Media, 139 S. Ct. 2356, 2363 (2019).

166. Curtis 1000, Inc. v. Suess, 24 F.3d 941, 947–48 (7th Cir. 1994) (Posner, J.) (citing

Rockwell, 925 F.2d at 179).

167. In fact, the Restatement of Unfair Competition instructs that “the rules governing

trade secrets remain relevant in assessing . . . the enforceability of [NDAs].” R

ESTATEMENT

(THIRD) OF UNFAIR COMPETITION § 42 cmt. g (AM. LAW. INST. 1995).

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The question then becomes: what steps are reasonable? While an

employer need not oversee its day-to-day operations with “Gestapo-like

tactics,”

168

the South Carolina Supreme Court has held that, at least in the

trade-secret context, an employer must exercise “eternal vigilance” to keep its

information secret.

169

Given that CBI is often defined as “information that

does not rise to the level of a trade secret,”

170

something short of “eternal

vigilance” is probably required for CBI.

Lowndes Products, Inc. v. Brower demonstrates the consequence of less-

than-adequate secrecy measures.

171

There, the South Carolina Supreme Court

found that Lowndes, a nonwoven-textile manufacturer, failed to take

reasonable steps to maintain its trade secrets where its employees weren’t

warned of the confidential nature of its manufacturing processes or required

to sign NDAs and were allowed to roam freely throughout the plant.

172

Additionally, no sign-in or badge system existed for visitors, its

manufacturing plant often remained unlocked, and actual and potential

competitors routinely toured its facilities.

173

Future Plastics, Inc. v. Ware Shoals Plastics, Inc. is also instructive.

174

Relying on the “eternal vigilance” standard, the District of South Carolina

held that a plastics manufacturer didn’t have a protectable trade secret in a

specific manufacturing process where the alleged appropriator twice refused

to sign an NDA and several other employees had been released from their

restrictive covenants.

175

The court also highlighted the plaintiff’s lax security

measures: employees from other parts of the plant, as well as delivery drivers,

were allowed to freely enter the section of the plant where the proprietary

manufacturing process took place, and prospective purchasers were permitted

to observe the process and related equipment.

176

In terms of practical guidance, employers should know that the

reasonableness standard is highly fact specific and likely depends on various

factors, such as the type of information being protected, the nature of the

industry, and the firm’s resources and capabilities. What’s reasonable for a

mom-and-pop business in Florence, South Carolina will not be reasonable for

Google or Apple. That said, there are several best practices available to firms

168. 4 ROGER M. MILGRIM, MILGRIM ON TRADE SECRETS § 18.03 (2021).

169. Lowndes Prods., Inc. v. Brower, 259 S.C. 322, 331, 191 S.E.2d 761, 766 (1972).

170. Bernier v. Merrill Air Eng’rs, 770 A.2d 97, 104 (Me. 2001).

171. 259 S.C. 322, 191 S.E.2d 761.

172. Id. at 330, 191 S.E.2d at 765–66.

173. Id.

174. 340 F. Supp. 1376 (D.S.C. 1972).

175. Id. at 1378, 1382–84.

176. Id. at 1380.

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of all sizes.

177

First, to restrict access internally, employers are urged to

disseminate confidential information only on a need-to-know basis,

178

house

electronic documents on password-protected networks,

179

place physical

documents under lock and key,

180

and limit or ban employees’ access to

confidential information on personal devices.

181

Moreover, employee

handbooks should clearly describe confidentiality policies,

182

and recipients

of CBI should be periodically reminded of their obligations to such

information via, for example, email newsletters or the posting of bulletins.

183

177. See generally Michael A. Epstein & Stuart D. Levi, Protecting Trade Secret

Information: A Plan for Proactive Strategy, 43 B

US. LAW. 887 (1988).

178. See, e.g., RKI, Inc. v. Grimes, 177 F. Supp. 2d 859, 874 (N.D. Ill. 2001) (“Disclosure

to only those who need the contents of a trade secret is adequate protection under the [Illinois

Trade Secret Act].”).

179. See, e.g., Propel PEO, Inc. v. Roach, No. 6:19-3546-HMH-KFM, 2020 WL 4606551,

at *9 & n.7 (D.S.C. July 24, 2020) (holding plaintiffs sufficiently alleged a misappropriation-of-

trade-secrets claim where they utilized network firewalls, password protections, and security

credentials; limited employees’ access to information on a need-to-know basis; revoked

employee authorization after termination; controlled physical access to offices; and required

employees to execute nondisclosure agreements); Arko Plumbing Corp. v. Rudd, 230 So.3d 520,

529–30 (Fla. Dist. Ct. App. 2017) (holding that maintaining customer pricing information in a

password-protected file and limiting access to two employees were “the sorts of reasonable

efforts to maintain secrecy required by [Florida’s] trade secret statute”).

180. See, e.g., Capsonic Grp., Inc. v. Plas-Met Corp., 361 N.E.2d 41, 44 (Ill. Ct. App.

1977) (holding plaintiff failed to demonstrate the existence of a protectible trade secret where it

failed to secure engineering drawings under lock and key).

181. See, e.g., Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279, 1299–

1301 (11th Cir. 2018) (finding plaintiff failed to take reasonable steps to secure customer

information where defendant was “encouraged . . . to store [the] information on a personal laptop

and phone” even though plaintiff otherwise limited employee access to the information and

maintained it on a password-protected computer system).

182. See, e.g., Pearl Ins. Grp. LLC, v. Baker, No. 0:18-cv-02353-JMC, 2018 WL 4103333,

at *4 (D.S.C. Aug. 29, 2018) (finding plaintiff took reasonable security measures where it

“require[ed] employees to sign confidentiality provisions . . . , promulgat[ed] privacy and

confidentiality provisions in its employee handbook, password-protect[ed] its computer systems

and communications systems, and br[ought] prompt enforcement actions to protect its rights”);

Mont. Silversmiths, Inc. v. Taylor Brands, LLC, 850 F. Supp. 2d 1172, 1179 (D. Mont. 2012)

(finding that, at the motion-to-dismiss stage, plaintiff sufficiently pled it took reasonable

precautions to protect its trade secrets where its employee handbook contained a section

reminding employees of their confidentiality obligations); Brightview Grp., LP v. Teeters, 441

F. Supp. 3d 115, 131 (D. Md. 2020) (granting preliminary injunction and finding plaintiff was

likely to succeed in establishing it took reasonable security measures to protect its underwritings

where it required all employees to sign and acknowledge its handbook, which included a

confidentiality policy, and “restrict[ed] access to the underwritings to 125 out of its 4,300

employees”).

183. See, e.g., Lowndes Prods., Inc. v. Brower, 259 S.C. 322, 330, 191 S.E.2d 761, 765

(1972) (“No signs were posted in the plant to remind employees of the alleged secrecy of

Lowndes’ operations.”); Vt. Microsystems, Inc. v. Autodesk, Inc., 88 F.3d 142, 150 (2d Cir.

1996) (finding plaintiff took reasonable steps to protect its trade secrets where it issued periodic

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1080 SOUTH CAROLINA LAW REVIEW [VOL. 73: 1053

As to departing employees, exit interviews should be conducted where

employees are once again reminded of their duties,

184

and employers should

attempt to ensure that all confidential information, whether in physical or

electronic form, is returned or deleted.

185

Employers should also exercise caution when interacting with third

parties. Nonemployee visitors should be required to sign in

186

and wear a

badge or other form of identification

187

and, preferably, escorted by a

company employee while onsite.

188

A company should also consider limiting

the scope of facility tours by designating areas that are “off-limits,”

189

banning

electronic device usage,

190

and refusing to answer specific questions.

191

Once

again, these suggestions are not intended to be exhaustive or mandatory by

reminders to employees about the need to keep information confidential); Pressure Sci., Inc. v.

Kramer, 413 F. Supp. 618, 627–28 (D. Conn. 1976) (denying trade-secret protection where

plaintiff failed to set forth a written policy advising employees that the company considered its

information confidential).

184. See, e.g., Lowndes, 259 S.C. at 330, 191 S.E.2d at 765 (noting that employees were

not admonished concerning the secrecy of Lowndes’ trade secrets upon termination); Gillis

Associated Indus., Inc. v. Cari-All, Inc., 564 N.E.2d 881, 886 (Ill. Ct. App. 1990) (concluding

information did not qualify as trade secret in part because plaintiff failed to conduct “entrance

and exit interviews imparting the importance of confidentiality”).

185. See, e.g., Abrasic 90 Inc. v. Weldcote Metals, Inc., 364 F. Supp. 3d 888, 900 (N.D.

Ill. 2019) (denying preliminary injunction where plaintiff failed to instruct its departing

employees to delete or return confidential information); Yellowfin Yachts, 898 F.3d at 1299–

1300 (finding plaintiff failed to engage in reasonable efforts to secure customer information

where defendant was never asked to delete such information from his personal devices after

leaving the company).

186. See, e.g., Lowndes, 259 S.C. at 330, 191 S.E.2d at 765 (“Plant security at Lowndes

was, at best, minimal. There was no ‘sign-in’ system or badge system.”); USM Corp. v. Marson

Fastener Corp., 393 N.E.2d 895, 899 (Mass. 1979) (“Visitors to the Shelton plant were always

logged in and waited in a reception room which was separated from the production area by an

opaque partition.”).

187. See, e.g., Leonard v. State, 767 S.W.2d 171, 177 (Tex. Ct. App. 1988) (“Visitors were

subjected to sign-in procedures and were provided escorts and special identification badges.”).

188. See, e.g., La Calhene, Inc. v. Spolyar, 938 F. Supp. 523, 530 (W.D. Wis. 1996) (“At

the Rush City plant, visitors were not permitted to move through the building without escort.”).

189. See, e.g., John-Manville Corp. v. Guardian Indus. Corp., 586 F. Supp. 1034, 1071

(E.D. Mich. 1983) (“The corporation as a whole followed a policy of requiring prior approval

for plant visitors, as well as the specification of certain areas as off-limits.”).

190. See, e.g., United States v. Roberts, No. 3:08-CR-175, 2010 WL 1010000, at *1 (E.D.

Tenn. Mar. 17, 2010) (“[A] sign at the entrance gate announced that cameras were not allowed

in the facility.”); Inner-Tite Corp. v. Brozowski, No. 20100156, 2010 WL 3038330, at *3 (Mass.

Super. Ct. Apr. 14, 2010) (“To prevent its manufacturing processes from being photographed,

Inner-Tite maintains a company policy prohibiting the use of cameras in the building, including

the use of cell phones for transmitting or recording pictures.”).

191. See, e.g., Nucor Corp. v. Bell, No. 2:06-CV-02972-DCN, 2008 WL 9894350, at *4

(D.S.C. Mar. 14, 2008) (questioning whether Nucor took reasonable steps to protect its

confidential information when it did not prohibit employees from answering questions).

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any means as there’s no one-size-fits-all solution to protecting confidential

information.

V. C

ONCLUSION

In today’s knowledge-based economy, NDAs provide employers with a

powerful tool to safeguard their CBI from rivals by extending the scope of

legal protection beyond that afforded by trade-secret law.

192

Moreover, from

a broader perspective, the enforcement of properly tailored NDAs helps

further confidentiality law’s dual aims of maintaining commercial morality

and fostering innovation.

193

Yet despite whatever laudable attributes NDAs

may have, South Carolina employers and their counsel face an uphill battle in

crafting them to withstand judicial scrutiny. This is because courts must

balance the employer’s need to protect its CBI against the employee’s right to

use his or her knowledge, training, and experience in future employment.

Although NDAs are not subject to the same judicial hostility that plagues

noncompete agreements, whenever an NDA encroaches on the employee’s

recognized right to mobility, South Carolina courts will not hesitate to strike

down such an agreement.

In review, South Carolina courts employ a two-step analysis when

evaluating an NDA. First, a reviewing court determines whether the NDA’s

plain language covers publicly available information or the employee’s

general skills or knowledge. If it does, the agreement will be subject to the

same temporal and geographic restrictions as a noncompete. If it doesn’t, the

agreement must only be tailored to protect a legitimate interest of the

employer and not inhibit the employee’s ability to earn a living. In all

practicality, an NDA will be doomed if it’s found to be overbroad at the first

step given that an NDA is unlikely to include a geographical restriction in

today’s digital age, where information can be transmitted anywhere in the

world with a single click.

On top of synthesizing the relevant case law on NDAs, this Note has also

sought to provide clarity and guidance to employers seeking to ensure that

their NDAs satisfy the above standard by discussing what to be aware of, what

to include, and perhaps most importantly, what to avoid when drafting an

NDA. Although these considerations are not intended to be all encompassing,

heeding them will go a long way in ensuring that an NDA will remain

enforceable in South Carolina.

192. RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 42 cmt. g. (AM. LAW. INST.

1995).

193. See discussion supra note 5.

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