Covenants Not to Solicit Employees

Many non-compete agreements not only attempt to undermine competition for a company’s customers but also prevent competition for its employees.  South Carolina courts have upheld covenants not to solicit employees by a former employee but only to the extent that such solicitations interfere with contractual relations.  This rule makes much more sense than those applied to solicitation of customers.

In Oxman v. Sherman, 239 S.C. 218, 122 S.E.2d 559 (1961), an insurance agent signed a contract in which he agreed that after termination of his employment, he would not “directly or indirection induce or attempt to induce…any employees to terminate their association with [the company].”   The South Carolina Supreme Court narrowly construed the covenant as restraining the former employee from inducing “employees to breach their contract of employment and not as preventing him from seeking the services of such employees as long as there is no interference with their contractual relations with [the company].”  However, the court noted that this construction was no different that the “right which exists independently of contract….”, although it did not note that the construction did not seem to arise out of the plain meaning of the language of the contract.

Of course, if a company has enforceable non-compete agreements with its employees, Oxman would prevent a former employee from inducing those employees to breach the non-compete and join a competing business.  However, it would appear this is the primary application of the rule stated in Oxman since most employers bend over backwards not to create contractual obligations in regards to continued employment.  

The question becomes why the difference in construction of agreements not to solicit employees and non-solicitation of customers?  Doesn’t it make perfect sense to protect only customers who have contractual obligations but make customers with no contractual commitments fair game?  Just like business information is generally only a protectable interest if it is a trade secret (or otherwise proprietary), which means that it is confidential and the employer has taken steps to protect the confidentiality of such information.  Business can make similar efforts to protect their customers by entering into a contractual relationship, and if they fail to do so, why is that any more of a protectable interest than its employees or non-trade secrets?  (I will consider this topic more in depth soon.  For now, food for thought.)

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