Two Bites At The Apple: Choice of Law Provisions in Non-Compete Agreements

Choice of Law Gives You Two Bites of the Apple

So, what happens when the state identified in a non-compete’s choice of law is different than the state in which the agreement will be enforced? In Stonhard v. Carolina Flooring Specialists, Inc. 366 S.C. 156, 621 S.E.2d 352 (2005) the court held that although a choice of law provision would permit a non-compete to be construed in accordance with another state’s law, if the non-compete was invalid under South Carolina law, it would not be enforced.  “Terms in a non-compete agreement may be construed according to the law of another state.  Standard Register Co. v. Kerrigan, 238 S.C. 54, 70-71, 119 S.E.2d 533, 541-42 (1961).  But if the resulting agreement is invalid as a matter of law or contrary to public policy in South Carolina, our courts will not enforce the agreement.”  

So, what is the practical application of the above rule? It seems clear that (at leaset under S.C. law) in such a case the non-compete agreement must pass muster under each state’s law. I just argued a case yesterday that had a North Carolina choice of law, but we were arguing about enforcement in South Carolina.  Applying the law as stated in Stonhard, the court must first construe the agreement in accordance with North Carolina law. If the agreement is enforceable under North Carolina law, then the court will enforce it it does not violate South Carolina public policy, i.e., it is not overly broad under South Carolina law.  This gives someone attempting to beat a non-compete two bites at the apple.  Yesterday, I took both bites, and loved every bit of it.  (Still waiting on whether the court will invalidate, but our chances are better because we had two sets of arguments instead of just one set.)

 

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