Poole v. Incentives Unlimited, Inc.
345 S.C. 378, 548 S.E.2d 207, 17 I.E.R. Cas. (BNA) 1157 (2001)
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Rule of Law:
When an employee signs a covenant not to compete after the inception of an at-will employment relationship, separate and additional consideration beyond merely continued at-will employment is necessary for the covenant to be enforceable, especially if the employee’s duties, position, and salary remain unchanged.
Facts:
- Carol C. Poole began working as an at-will travel agent for Incentives Unlimited in 1992.
- In April 1996, Incentives Unlimited asked Poole to sign an 'Employment Agreement' which consisted solely of a covenant not to compete.
- Poole was allegedly told she had to sign the agreement to remain employed, while Incentives stated she received continued employment for signing.
- Poole signed the Employment Agreement on April 30, 1996.
- In November 1996, Poole left Incentives Unlimited and began working for another travel agency.
- Incentives Unlimited refused to transfer cruise bookings for Poole and five of her friends, causing them to re-book at an increased cost.
Procedural Posture:
- Carol C. Poole sued Incentives Unlimited to recover the increased costs for re-booking cruises.
- Incentives Unlimited answered and counterclaimed, seeking a temporary injunction against Poole for violating the covenant not to compete and seeking damages for the alleged breach.
- The trial court denied Incentives Unlimited's request for a temporary injunction.
- Both parties moved for summary judgment.
- The trial judge granted summary judgment to Poole, ruling that the covenant not to compete was unenforceable due to lack of consideration and not being witnessed by a disinterested party under S.C. Code Ann. § 41-19-50.
- Incentives Unlimited (appellant) appealed the trial court's decision.
- The Court of Appeals affirmed the trial court's decision, holding the covenant invalid due to a lack of consideration, but did not address the applicability of S.C. Code Ann. § 41-19-50.
- Incentives Unlimited (petitioner) was granted a writ of certiorari by the Supreme Court of South Carolina to review the Court of Appeals' decision.
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Issue:
Does continued at-will employment constitute sufficient consideration to support a covenant not to compete that is entered into after the commencement of an ongoing employment relationship?
Opinions:
Majority - Toal, Chief Justice
No, continued at-will employment is insufficient consideration to support a covenant not to compete entered into during an ongoing employment relationship when there is no change in duties, position, or salary. The Court affirmed that covenants not to compete are enforceable only if they are not detrimental to public interest, reasonably limited as to time and territory, and supported by valuable consideration (citing South Carolina Fin. Corp. of Anderson v. West Side Finance Co. and Standard Register Co. v. Kerrigan). While a covenant signed at the inception of at-will employment can be supported by the employment itself as consideration (Riedman Corporation v. Jarosh), the more complex issue arises when such a covenant is introduced after employment has already begun. The Court distinguished Standard Register Co. v. Kerrigan, where a covenant signed 13 years into employment was enforceable because the employee received additional benefits like changes in duties, pay, and position. Adopting a rule similar to North Carolina's (Kadis v. Britt), the Court held that when a covenant is introduced after the start of employment, separate consideration, beyond merely continued at-will employment, is required for enforceability. Since Poole’s duties, position, and salary remained unchanged after she signed the covenant, it lacked the necessary separate consideration and was therefore unenforceable. The Court declined to address the applicability of S.C. Code Ann. § 41-19-50, finding it unnecessary given the lack of consideration.
Analysis:
This case significantly clarifies the consideration requirement for covenants not to compete in South Carolina, particularly when they are introduced after an employee has already begun an at-will employment relationship. It establishes a higher bar for employers, mandating that they provide a new and distinct benefit (e.g., a promotion, raise, or change in duties) to an existing employee for such a covenant to be enforceable. This ruling prevents employers from leveraging the threat of job loss to impose restrictive agreements without offering tangible new value, thereby providing greater protection for employees and promoting fair contractual dealings in ongoing employment contexts.
