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In an opinion announced on March 1, 2017, the South Carolina Court of Appeals concluded that although confidentiality and nondisclosure agreements “do not necessarily require reasonable time restrictions,” such agreements would so require if they have “the same effect as a non-compete provision . . . .” Fay v. Total Quality Logistics, LLC, Opinion No. 5471 (filed March 1, 2017).

Fay, a logistics sales account executive, signed a Non-Compete, Confidentiality, and Non-Solicitation Agreement when he was hired.  A choice of law provision in the Agreement said it would be “interpreted and enforced” under Ohio law.  The non-disclosure provision stated “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 confidential.”  The Agreement provided a definition for Confidential Information.  Although it did not include a time restriction, the Agreement said it was binding on Fay “at all times” following his employment with TQL.  The provision also said that if Fay engaged in employment with a competing business “in a position similar” to the one he held with TQL. “it would “necessarily and inevitably result in Confidential Information to unfairly compete with TQL.”

In reversing the lower court, the Court of Appeals affirmed some principals espoused in earlier decisions: that an agreement sought to be enforced in South Carolina must comport with the state’s public policy, that contracts against competition are a “restraint of trade,” and that trade secrets provisions are not void on their face if they lack durational or geographical limitations. However, the Fay Court, concluded the non-disclosure provision of the Agreement was a violation of South Carolina’s public policy because it provided that “if Fay [became] engaged in an employment relationship with a Competing Business, which was defined as an “any person, firm or corporation or entity that is engaged in the Business anywhere in the Continental United States, “Fay could never hold a position similar to his position at TQL with any competitor of TQL without violating the Agreement.”

The decision included a concurrence in which Judge Geathers stated that the Court should have first applied Ohio law since such was provided in the Agreement and the failure to do so, renders a choice of law provision “meaningless.” In citing Stonhard, Inc. v. Carolina Flooring Specialists, Inc., 366 S.C. 156, 621 S.E.2d 352( 2005), Judge Geathers said “modifying an agreement pursuant to the law of the state governing the agreement would not violate South Carolina public policy.”  While Ohio law would have allowed a court to modify an agreement, the language of the Agreement before the Court would not lend itself to an easy modification reflecting the intent of the parties.