Facts
- Total Quality Logistics, LLC (TQL), an Ohio-based freight brokerage company, hired Joshua Fay in late 2012 as a logistics sales account executive.
- As a condition of employment, Fay signed a non-compete/non-disclosure agreement containing non-competition, confidentiality, and non-solicitation provisions and an Ohio choice-of-law clause.
- The agreement defined “confidential information” broadly to include customer and pricing information, marketing data, internal policies and procedures, and business terms and dealings.
- The agreement required nondisclosure “at all times,” without a stated end date, and included language presuming that work for a competitor in a similar role would necessarily and inevitably disclose TQL’s confidential information.
- Fay worked for TQL from December 2012 until TQL terminated him in June 2013.
- After termination, Fay started his own business and performed work for a client; TQL asserted this conduct violated the agreement and threatened litigation.
- Fay filed a declaratory judgment action seeking a ruling that the agreement was invalid and unenforceable; TQL counterclaimed for breach of contract and misappropriation of confidential information and moved for summary judgment.
Issues
- Whether South Carolina public policy bars enforcement of a confidentiality/nondisclosure agreement (despite an Ohio choice-of-law clause) when its breadth and indefinite duration effectively restrain a former employee from working in the industry.
- Whether TQL was entitled to summary judgment on its counterclaims for breach of contract and misappropriation of confidential information.
Decision
- The Court of Appeals reversed the circuit court’s partial summary judgment that upheld the agreement’s enforceability.
- The court held the agreement’s nondisclosure provisions were so broad and indefinite that they operated as a de facto noncompete without a reasonable time limitation, contrary to South Carolina public policy favoring the right to earn a living.
- The court declined to reform the agreement by adding limitations, consistent with South Carolina’s rule against judicial rewriting of restrictive covenants.
- The court dismissed TQL’s cross-appeal seeking summary judgment on its counterclaims, leaving the circuit court’s denial of summary judgment on those claims in place.
Legal Principles
- South Carolina will not apply a contractual choice-of-law provision when enforcement would contravene a strong South Carolina public policy.
- Restrictive covenants in employment are disfavored and strictly construed; to be enforceable, they must be reasonably necessary to protect the employer, reasonably limited in time and place, and not unduly harsh in restricting the employee’s ability to earn a living.
- A confidentiality or nondisclosure provision that is drafted and enforced so broadly that it effectively prevents competitive employment is treated like a noncompete and must satisfy noncompete reasonableness requirements, including a reasonable time limitation.
- South Carolina courts do not “blue pencil” or rewrite overbroad restrictive covenants by inserting missing limits; an unreasonable restraint is unenforceable.
Conclusion
The court held that a perpetual, broadly defined confidentiality regime coupled with an “inevitable disclosure” presumption functioned as an indefinite nationwide restraint on employment and therefore violated South Carolina public policy, rendering the agreement unenforceable and defeating TQL’s attempt to obtain summary judgment on claims premised on that agreement.