Will a South Dakota court enforce this employee non-competition covenant?
Yes, within a two-year cap, but how much a court scrutinizes it depends on how the employment ended. SDCL 53-9-8 makes any contract restraining the exercise of a lawful profession, trade, or business "void to that extent," subject to the four exceptions in §§ 53-9-9 to 53-9-12: sale of good will, dissolution of a partnership, the employment exception, and a captive insurance agent. SDCL 53-9-11 supplies the employment exception, and it is qualified from its first words, "Except as otherwise provided in § 53-9-11.2": an employee may agree, at hiring or at any time during employment, "not to engage directly or indirectly in the same business or profession as that of the employer for any period not exceeding two years from the date of termination of the agreement and not to solicit existing customers of the employer within a specified county, first- or second-class municipality, or other specified area for any period not exceeding two years," so long as the employer keeps carrying on a like business there. Central Monitoring Service, Inc. v. Zakinski then supplies the enforcement rule that decides most disputes, naming its two earlier decisions, Centrol, Inc. and American Rim & Brake, as the ones that control the quit-or-fired-for-cause case: "We hold that if an employee voluntarily quits his employment or is fired for good cause, ... will control and no further showing of reasonableness will be necessary as long as the ... agreement complies with SDCL 53-9-11." The second half is the one that decides a firing: "However, if an employee is fired for no fault of his own, the court needs to go further to determine whether the agreement is reasonable." Zakinski also states the canon that decides the close ones: "Such exceptions must be construed narrowly so as to promote the prohibition against contracts in restraint of trade."
The trap
A covenant that fits inside SDCL 53-9-11's two-year cap and the specified-area requirement is not automatically enforced the way it would be against an employee who quit or was fired for cause: Zakinski's second holding sentence is the one that bites: "However, if an employee is fired for no fault of his own, the court needs to go further to determine whether the agreement is reasonable." Going further means a balancing test in the court's own words, "To do that the trial court must engage in a balancing test in which the court is obliged to consider the following," and the three criteria Zakinski applies come from 1st American Systems as Zakinski quotes it ("[A] covenant is reasonable only if it (1) is no greater than is required for the protection of the employer, (2) does not impose undue hardship on the employee and (3) is not injurious to the public."), while Restatement (Second) of Contracts § 188(1), which Zakinski sets out alongside them, states the same idea in two prongs: a restraint "greater than is needed to protect the promisee's legitimate interest," or a need "outweighed by the hardship to the promisor and the likely injury to the public." The consequence on these facts was concrete: the non-disclosure injunction was affirmed but "the portion of the injunction restraining him from working for any of Central's competitors in South Dakota for a period of two years is reversed and remanded to the trial court to analyze and balance the competing interests of Central, Zakinski and the public," precisely because the employee there was fired through no fault of his own. Whether an employee's termination was voluntary, for cause, or without fault is therefore a threshold fact question that changes the entire legal test, not a detail collateral to enforceability. Separately, SDCL 53-9-11 itself is subject to SDCL 53-9-11.2 for contracts entered on or after July 1, 2023 (or July 1, 2026 for community services providers): a covenant restricting a "practitioner" as defined in § 53-9-11.1 from providing professional services after employment ends is voidable notwithstanding § 53-9-11, regardless of quit/fired status: a category this rule does not otherwise cover. That voidability carries two carve-outs stated in the same section, which "does not apply to any contractual provision that: (1) Is effective upon the sale of a practice or interest in a practice; or (2) Restricts a practitioner or community services provider from soliciting current patients or clients of the former employer," so long as the solicitation stays inside the geographic and temporal limits of § 53-9-11. Note also that § 53-9-11 is the EMPLOYEE exception only: an independent contractor who is a captive insurance agent falls under SDCL 53-9-12 instead, which lets the insurer take a two-year non-compete and a two-year bar on soliciting "existing customers of the insurer within a specified county, first or second class municipality, or other specified area" (the municipality wording there differs from the wording in § 53-9-11). The "specified area" requirement is a real one as well: in Centrol, Inc. v. Morrow the employees attacked the employer's trade area as incapable of determination, and the covenant survived because the area was in fact defined, known to them and mapped with their own participation, so that "the duration, area and consideration are valid under SDCL 53-8-7 and 53-9-11."
15 authorities
- statuteSDCL § 53-9-8enactment date not established
The words that state the rule
Any contract restraining exercise of a lawful profession, trade, or business is void to that extent, except as provided by §§ 53-9-9 to 53-9-12 , inclusive.
- statuteSDCL § 53-9-11enactment date not established
The words that state the rule
Except as otherwise provided in § 53-9-11.2 , an employee may agree with an employer at the time of employment or at any time during employment not to engage directly or indirectly in the same business or profession as that of the employer for any period not exceeding two years from the date of termination of the agreement and not to solicit existing customers of the employer within a specified county, first- or second-class municipality, or other specified area for any period not exceeding two years from the date of termination of the agreement, if the employer continues to carry on a like business therein.
- case553 N.W.2d 513Central Monitoring Service, Inc. v. ZakinskiS.D.decided 1996read it at the source ↗
The words that state the rule
We hold that if an employee voluntarily quits his employment or is fired for good cause, Centrol, Inc. and American Rim & Brake will control and no further showing of reasonableness will be necessary as long as the non-eompete or non-disclosure agreement complies with SDCL 53-9-11.
- statuteSDCL § 53-9-11.2enactment date not established
The words that state the rule
Notwithstanding § 53-9-11 , a provision of a contract, entered into on or after July 1, 2023, is voidable if it restricts a practitioner, as defined in § 53-9-11.1 , from practicing or otherwise providing professional services in accordance with the applicable scope of practice, after the conclusion of the practitioner's employment or after the dissolution of a partnership or other form of professional relationship.
- statuteSDCL § 53-9-11.2enactment date not established
The words that state the rule
Notwithstanding § 53-9-11 , a provision of a contract, entered into on or after July 1, 2026, is voidable if it restricts a community services provider, as defined in § 27B-1-17 , from employment in or otherwise providing services to individuals with developmental disabilities, after the conclusion of the provider's employment or after the dissolution of a partnership or other form of contractual relationship.
- statuteSDCL § 53-9-11.1enactment date not established
The words that state the rule
For purposes of § 53-9-11.2 , a practitioner means: (1) A physician licensed in accordance with chapter 36-4 ; (2) A physician assistant licensed in accordance with chapter 36-4A ;
- case553 N.W.2d 513Central Monitoring Service, Inc. v. ZakinskiS.D.decided 1996read it at the source ↗
The words that state the rule
However, if an employee is fired for no fault of his own, the court needs to go further to determine whether the agreement is reasonable.
- case553 N.W.2d 513Central Monitoring Service, Inc. v. ZakinskiS.D.decided 1996read it at the source ↗
The words that state the rule
(1) A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade if (a) the restraint is greater than is needed to protect the promisee’s legitimate interest, or (b) the promisee’s need is outweighed by the hardship to the promisor and the likely injury to the public.
- case553 N.W.2d 513Central Monitoring Service, Inc. v. ZakinskiS.D.decided 1996read it at the source ↗
The words that state the rule
The reasonableness of each provision is the benchmark for partial enforcement of the instant covenants. “[A] covenant is reasonable only if it (1) is no greater than is required for the protection of the employer, (2) does not impose undue hardship on the employee and (3) is not injurious to the public.” This test is then applied to the duration, area limitations, and range of activities covered in the agreement, (citations omitted).
- case553 N.W.2d 513Central Monitoring Service, Inc. v. ZakinskiS.D.decided 1996read it at the source ↗
The words that state the rule
The trial court’s grant of an injunction restraining Zakinski from violating the confidentiality (non-disclosure) portion of the agreement is affirmed. However, the portion of the injunction restraining him from working for any of Central’s competitors in South Dakota for a period of two years is reversed and remanded to the trial court to analyze and balance the competing interests of Central, Zakinski and the public to determine whether the non-compete portion of the agreement is reasonable.
- statuteSDCL § 53-9-11.2enactment date not established
The words that state the rule
This section does not apply to any contractual provision that: (1) Is effective upon the sale of a practice or interest in a practice; or (2) Restricts a practitioner or community services provider from soliciting current patients or clients of the former employer, partnership, or other professional relationship, provided the solicitation complies with the geographic and temporal limitations as referenced in § 53-9-11 .
- statuteSDCL § 53-9-12enactment date not established
The words that state the rule
Any independent contractor who is an insurance producer as defined in subdivision 58-1-2(16) and is a captive agent who is not an independent agent and who works exclusively for a single insurance company or an affiliated group of insurance companies, even if the single insurance company allows its captive agents to market the products of another insurance company pursuant to contract, may agree with an insurer at the time of contracting or at any time during the term of the contract: (1) Not to engage directly or indirectly in the same business or profession as that of the insurer for any period not exceeding two years from the date of termination of the independent contractor's agreement with the insurer; and (2) Not to solicit existing customers of the insurer within a specified county, first or second class municipality, or other specified area for any period not exceeding two years from the date of termination of the agreement, if the insurer continues to carry on a like business within the specified area.
- case553 N.W.2d 513Central Monitoring Service, Inc. v. ZakinskiS.D.decided 1996read it at the source ↗
The words that state the rule
SDCL 53-9-11, which is in issue in this case, is one of the exceptions to SDCL 53-9-8. Such exceptions must be construed narrowly so as to promote the prohibition against contracts in restraint of trade.
- case553 N.W.2d 513Central Monitoring Service, Inc. v. ZakinskiS.D.decided 1996read it at the source ↗
The words that state the rule
To do that the trial court must engage in a balancing test in which the court is obliged to consider the following: Ultimately, the task of determining reasonableness is one of balancing competing interests, for which there can be no mathematical formula.... Each case must be determined on its own particular facts, and it is impossible to lay down any general rule.
The words that state the rule
Since the duration, area and consideration are valid under SDCL 53-8-7 and 53-9-11, the court's conclusion that the non-competition and non-disclosure agreements were valid was not error.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.