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North Carolina Business Court Addresses Consideration Requirement for Covenant Not to Compete

September 20, 2017 Author: Peter G. Pappas In American Air Filter Co., Inc. v. Price, No. 16 CvS 13610, 2017 WL 2797794 (N.C. Super. Ct. June 26, 2017), the plaintiff’s former employee signed an employment agreement that renewed automatically each year. The agreement contained a non-compete covenant. The plaintiff alleged that its former employee received consideration for each renewing year in the form of base salary, commissions and bonuses. Significantly, however, the complaint did not allege that the former employee’s salary or bonus was increased in conjunction with the alleged annual renewals. Id., 2017 WL 2797794, at *2. Therefore, in deciding the plaintiff’s claim seeking to enforce the employment agreement’s covenant not to complete against the former employee, the Business Court concluded that there was no consideration to support the agreement at the time of the employee’s resignation in 2016 and therefore, it dismissed the claim. Id., 2017 WL 2797794, at *7-8.

Update: Noncompete Agreements in SC are Worth More Than the Paper They're Written On

In light of the restrictive nature with which South Carolina courts have historically viewed noncompetition agreements, many people assume they are not enforceable and, in essence, “not worth the paper they’re written on.” However, in January of this year, the South Carolina Court of Appeals upheld a physician’s noncompetition agreement and expanded the scope of enforceable noncompetition agreements in this state. See Baugh and Feldman v. Columbia Heart Clinic, P.A., Op. No. 5074 (Jan. 16, 2013). Importantly, not only does the ruling expand the scope of enforceable agreements, but it also contemplates that future consideration, in the form of severance payments, is acceptable to support such agreements.

Restrictive Covenants in Employment Contracts in SC and NC. (pdf).

While agreements in restraint of trade were deemed void against public policy at early English common law, a covenant imposing a reasonable restraint is no longer per se invalid.