Poole v. Incentives Unlimited, Inc.

• Decision Date: 06 December 1999
• Docket Number: No. 3083.,3083.
• Citation: 338 S.C. 271,525 S.E.2d 898
• Court: South Carolina Court of Appeals
• Parties: Carol C. POOLE, Respondent, v. INCENTIVES UNLIMITED, INC. d/b/a Dunlap Motivation and Travel, Appellant. Incentives Unlimited, Inc. d/b/a Dunlap Motivation and Travel, Third-Party Plaintiff, v. Northshore Travel, Inc., Third-Party Defendants.

338 S.C. 271

525 S.E.2d 898

Carol C. POOLE, Respondent, v. INCENTIVES UNLIMITED, INC. d/b/a Dunlap Motivation and Travel, Appellant.

Incentives Unlimited, Inc. d/b/a Dunlap Motivation and Travel, Third-Party Plaintiff, v. Northshore Travel, Inc., Third-Party Defendants.

No. 3083.

Court of Appeals of South Carolina.

Heard November 2, 1999.

Decided December 6, 1999.

Rehearing Denied January 29, 2000.

D. Garrison Hill, of Hill, Wyatt & Bannister, of Greenville, for appellant.

Chris B. Roberts, Brown, Massey, Evans & McLeod, of Greenville, for respondent.

STILWELL, Judge:

The issue addressed in this appeal is whether a covenant not to compete is enforceable when entered into during an at-will employment relationship and the only "benefit" to the employee is that the employee is not terminated. While other cases have tangentially addressed the issue, this is the first time it has been so squarely presented to an appellate court in this state. The trial court held that a covenant not to compete entered into under these circumstances is unenforceable for lack of consideration. We agree and affirm.

FACTS

Carol C. Poole began working as a travel agent for Incentives Unlimited in April 1992. Four years later Incentives asked Poole to sign an "Employment Agreement" containing a covenant not to compete. The agreement is dated April 30, 1996, and is signed by both Poole and Incentives. The covenant provided that Poole would not engage in any activity which directly competed with Incentives for one year after Poole ceased her employment and was effective for the counties of Greenville, Spartanburg, Anderson, and Pickens. Poole alleges she was told she had to sign the agreement in order to remain employed, and she was offered no other compensation or consideration in exchange for signing the covenant not to compete.

Poole left Incentives in November 1996 and soon thereafter began working at another travel agency. Poole sued Incentives after it refused to transfer cruise bookings for her and five of her friends and they re-booked the tour at an increased cost. Incentives answered and counterclaimed, seeking an order temporarily enjoining Poole from violating the covenant not to compete and seeking damages for the alleged breach of the covenant. The trial court denied Incentives's request for a temporary injunction. Incentives's appeal of the denial of injunctive relief was held in abeyance pending consideration of the case on the merits.

Both Poole and Incentives subsequently moved for summary judgment on Incentives's counterclaim for enforcement of the covenant not to compete. The trial court granted Poole summary judgment, finding the covenant not to compete was invalid and unenforceable because, among other things, Poole received no new consideration. Incentives's two appeals were consolidated.

DISCUSSION

Incentives contends the trial court erred in granting summary judgment to Poole on its counterclaim and finding the covenant was unenforceable due to a lack of consideration. We disagree.

In order to be upheld, a covenant not to compete must be supported by valuable consideration. Rental Uniform Serv. of Florence, Inc. v. Dudley, 278 S.C. 674, 301 S.E.2d 142 (1983) (listing the five factors required for a covenant not to compete); see Shayne of Miami, Inc. v. Greybow, Inc., 232 S.C. 161, 167, 101 S.E.2d 486, 489 (1957) ("[A] benefit to the promisor or a detriment to the promisee is sufficient consideration for a contract.").

This state has held that a covenant not to compete, ancillary to an initial contract of employment, may be enforced where the consideration for the covenant is based solely upon the at-will employment itself. Riedman Corp. v. Jarosh, 290 S.C. 252, 349 S.E.2d 404 (1986); see also Small v. Springs Indus., Inc., 292 S.C. 481, 484 n. 1, 357 S.E.2d 452, 454 n. 1 (1987) ("At will employment constitutes sufficient consideration to support a covenant not to compete."). Therefore, there would have been adequate consideration if Poole had signed the covenant not to compete when she began working for Incentives.

In the situation where an at-will employee works for an employer for a number of years before entering into a covenant not to compete, the supreme court has held that adequate consideration existed for enforcement of the covenant because the employee's position and duties changed when he signed the covenant. Standard Register Co. v. Kerrigan, 238 S.C. 54, 119 S.E.2d 533 (1961). The court noted that the signing of the agreement changed the employee's contractual relationship with his employer, thus conferring on him a valuable benefit. Id. at 73-74, 119 S.E.2d at 543-44 (finding that "even though Kerrigan had been in the employ of the appellant for a number of years, his position and duties were changed when he signed the contract.").

In Kerrigan, the supreme court cited with favor the North Carolina case of Kadis v. Britt, 224 N.C. 154, 29 S.E.2d 543 (1944), "ordinarily employment is a sufficient consideration to support a restrictive negative covenant, but where the employment contract is supported by purported consideration of continued employment, ... [it] was without consideration where contract was exacted after several years employment and employee's duties and position were left unchanged." Kerrigan, 238 S.C. at 73,119 S.E.2d at 543 (distinguishing the situation in Kadis from that found in Kerrigan).

The supreme court in Kerrigan also cited with favor the North Carolina case of Brooks Distrib. Co. v. Pugh, 91 N.C.App. 715, 373 S.E.2d 300 (1988), rev'd on other grounds, 324 N.C. 326, 378 S.E.2d 31 (1989). In Brooks, the North Carolina court of appeals explicitly held "if an employment relationship already exists without a covenant not to compete, any such future covenant must be based upon new consideration." Brooks, 373 S.E.2d at 303.¹

Clearly then, under South Carolina law, if an at-will employment relationship already exists without a covenant not to compete, any future covenant must be based upon new consideration. Incentives maintains that because Poole was an at-will employee, her continued employment was the consideration she received for signing the covenant. We disagree.

Incentives received a benefit when Poole signed the covenant not to compete to her detriment, but it is obvious that Poole received no new benefit. Poole enjoyed no benefit the day after she signed the agreement that she did not have the day before. After Poole signed the covenant not to compete, she remained merely an at-will employee, the same as before. She had no increase in salary, no bonus, and no changed work conditions. The promise of continued employment was illusory because even though Poole signed the covenant, Incentives retained the right to discharge her at any time.

Therefore, the covenant not to compete was not supported by consideration. See Atlantic Joint...