Enforcing Non-Compete and Non-Solicitation Agreements for Employers in South Dakota

Discovering that a top sales executive or senior engineer in Sioux Falls has resigned to join a direct competitor down the street-and is actively calling your highest-margin accounts-requires immediate legal action. Yet if your company uses an out-of-state employment template with a three-year duration, a nationwide territory, or an outdated healthcare clause, a South Dakota judge will declare the restriction void as an unlawful restraint of trade.

Unlike states that rely on flexible common-law balancing tests, South Dakota governs restrictive covenants through strict statutory rules. Enforcing non-compete and non-solicitation agreements for employers in South Dakota requires precise adherence to statutory time limits, municipal and county geographic boundaries, and industry-specific carve-outs.

The Statutory Framework: SDCL 53-9-8 and SDCL 53-9-11

In South Dakota, the baseline rule under S.D. Codified Laws § 53-9-8 states that every contract restraining the exercise of a lawful profession, trade, or business is void, unless it falls squarely within one of the narrow statutory exceptions in Chapter 53-9. For employment relationships, the governing exception is S.D. Codified Laws § 53-9-11 (commonly cited as SDCL 53-9-11).

Under S.D. Codified Laws § 53-9-11, an employee may validly agree with an employer-either at the time of hiring or at any time during employment-to two specific post-termination restrictions, provided the employer continues to carry on a like business in the area:

• Non-Compete Clause: 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.
• Customer Non-Solicitation Clause: 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.

In American Rim & Brake, Inc. v. Zoellner, 382 N.W.2d 421 (SD Supreme Court 1986), the court held that when a non-compete agreement strictly complies with the statutory parameters of S.D. Codified Laws § 53-9-11, courts enforce the covenant as written without conducting a separate common-law reasonableness inquiry. Furthermore, in Centrol, Inc. v. Morrow, 489 N.W.2d 890 (SD Supreme Court 1992) and Central Monitoring Service, Inc. v. Zakinski, 553 N.W.2d 513 (SD Supreme Court 1996), the court confirmed that continued at-will employment constitutes sufficient legal consideration for a covenant signed by an existing employee during employment.

Industry-Specific Enforcement Rules in South Dakota

Healthcare Professionals (Physicians, Nurses, and Practitioners)

Hospitals, clinics, and private practices in Sioux Falls, Rapid City, Aberdeen, and Yankton navigate strict statutory limits on healthcare covenants. Under S.D. Codified Laws § 53-9-11.1 and S.D. Codified Laws § 53-9-11.2, any contract provision restricting a licensed healthcare practitioner from practicing or providing professional services after employment concludes is voidable at the option of the practitioner. Furthermore, for contracts entered into on or after July 1, 2026, under S.D. Codified Laws § 53-9-11.2, non-competes are likewise voidable for community services providers providing services to individuals with developmental disabilities under S.D. Codified Laws § 27B-1-17.

The definition of a protected practitioner under S.D. Codified Laws § 53-9-11.1 covers 20 distinct professions, including physicians (MDs and DOs), physician assistants (PAs), registered nurses (RNs), licensed practical nurses (LPNs), certified registered nurse anesthetists (CRNAs), nurse practitioners (NPs), dentists, optometrists, chiropractors, physical therapists, pharmacists, psychologists, and social workers. Crucially, under S.D. Codified Laws § 53-9-11.2, the law provides two express statutory exceptions: (1) covenants effective upon the bona fide sale of a practice or interest in a practice, and (2) provisions restricting a practitioner or community services provider from soliciting current patients or clients of the former employer, so long as the restriction complies with the two-year and geographic limits of S.D. Codified Laws § 53-9-11. The statute defines soliciting as a targeted affirmative act directed toward a patient or client to convince them to transfer care. Healthcare employers also utilize pro-rated sign-on bonus clawbacks, trade-secret protections, and fixed-term notice provisions.

Tech Sector Employees and Software Engineers

Technology firms, fintech startups, and cybersecurity providers in Sioux Falls, Brookings, and Dakota Dunes often compete for talent nationwide. However, drafting a non-compete that bars a software developer from working for any competitor in the United States is unenforceable under S.D. Codified Laws § 53-9-8. Tech employers must explicitly enumerate the specific South Dakota counties (such as Minnehaha, Lincoln, Brookings, and Pennington Counties) or municipalities where the company conducts business. To protect proprietary source code and algorithms beyond those geographic borders, tech employers pair localized non-competes with a robust Confidentiality and Inventions Assignment Agreement enforced under the South Dakota Uniform Trade Secrets Act, S.D. Codified Laws § 37-29-1.

Commission-Based Sales Representatives

For commission-based sales representatives in agribusiness, manufacturing, equipment leasing, and financial services, customer goodwill is the primary asset at risk. Employers should draft a bifurcated agreement under S.D. Codified Laws § 53-9-11 containing both a two-year non-compete and a two-year non-solicitation clause naming every county in the representative's assigned sales territory. Crucially, businesses must verify that their sales representatives are W-2 employees rather than 1099 independent contractors. In Communication Technical Systems, Inc. v. Densmore, 583 N.W.2d 125 (SD Supreme Court 1998), the court ruled that S.D. Codified Laws § 53-9-11 applies strictly to employer-employee relationships, meaning non-competes with independent contractors are void unless they are captive insurance agents covered by S.D. Codified Laws § 53-9-12 or sellers of a business under S.D. Codified Laws § 53-9-9.

Step-by-Step Process in South Dakota to Enforce a Non-Compete

Step 1: Audit the Signed Agreement and Preserve Digital Evidence

Immediately upon learning of a breach, verify that the signed contract limits the duration to two years or less, specifies exact counties or municipalities, and does not involve an exempt healthcare practitioner under S.D. Codified Laws § 53-9-11.1. Forensically preserve the departing employee's company laptop, email server logs, CRM downloads, and cell phone records to document any customer solicitation or trade secret theft.

Step 2: Issue Cease-and-Desist Notices

Have legal counsel send a formal cease-and-desist letter to the former employee demanding written assurances of compliance and preservation of electronic evidence. Simultaneously, send a notice letter to the new competing employer enclosing a copy of the restrictive covenant to place them on notice of potential liability for tortious interference with contractual relations.

Step 3: File a Verified Complaint and Motion for Injunctive Relief

If the breach continues, file a Verified Complaint alongside Form UJS-232, South Dakota, Unified Judicial System, Case Filing Statement in the appropriate state trial court-such as the Second Judicial Circuit Court, Minnehaha County, Sioux Falls (425 N. Dakota Avenue, Sioux Falls, SD, phone 605-367-5900) or the Seventh Judicial Circuit Court, Pennington County, Rapid City (315 Saint Joseph Street, Rapid City, SD, phone 605-394-2571)-or in the U.S. District Court for the District of South Dakota, Sioux Falls if diversity jurisdiction exists. Request an immediate Temporary Restraining Order (TRO) and Preliminary Injunction pursuant to S.D. Codified Laws § 21-8-2 and S.D. Codified Laws § 15-6-65(a).

Step 4: Post the Injunction Bond and Litigate Damages

Under S.D. Codified Laws § 15-6-65(c), the circuit court will require the employer to post a security bond to cover potential costs and damages if the employee is later found to have been wrongfully enjoined. Once the preliminary injunction stops the competitive activity, proceed with discovery to calculate lost profits or unjust enrichment damages.

How Much Does it Cost in South Dakota?

Employers budgeting for drafting or enforcing restrictive covenants in South Dakota should account for court costs, bond requirements, and a critical state rule regarding attorney's fees:

• Contract Drafting and Review: Having a South Dakota employment attorney draft customized non-compete, non-solicitation, and confidentiality agreements tailored to S.D. Codified Laws § 53-9-11 typically costs $750 to $2,500.
• Court Filing and Service Fees: Filing a civil action for injunctive relief in a South Dakota Circuit Court costs $72 for the mandatory filing fee (under S.D. Codified Laws § 16-2-29, S.D. Codified Laws § 16-2-39, and S.D. Codified Laws § 14-6-1), plus $50 to $100 for sheriff or private process server fees. Filing in federal court costs $405.
• Injunction Security Bond: Depending on the employee's annual compensation, judges typically set the mandatory preliminary injunction bond under S.D. Codified Laws § 15-6-65(c) between $5,000 and $50,000.
• Litigation Attorney Fees and the Statutory Fee-Shifting Ban: Seeking a TRO and preliminary injunction typically requires $7,500 to $25,000 in legal fees, while full litigation through trial can reach $35,000 to $80,000+. Crucially, under S.D. Codified Laws § 15-17-38, South Dakota strictly follows the American Rule and prohibits courts from enforcing contractual attorney-fee-shifting clauses in general employment contracts. An employer can only recover attorney's fees if a specific statute authorizes them-most notably S.D. Codified Laws § 37-29-4, which allows attorney's fees when a former employee engages in willful and malicious misappropriation of trade secrets.

How Long Does the Process Take?

Because customer defection happens rapidly, South Dakota courts provide expedited tracks for restrictive covenant injunctions:

• Cease-and-Desist Resolution: Many disputes settle within 5 to 14 days after counsel serves a cease-and-desist letter on the departing worker and their new employer.
• Temporary Restraining Order (TRO): An emergency TRO under S.D. Codified Laws § 15-6-65(b) can be obtained within 24 to 72 hours of filing the verified complaint and normally remains in effect for up to 10 days (extendable for an additional 10 days for good cause).
• Preliminary Injunction Hearing: An evidentiary hearing on a motion for a preliminary injunction typically takes place within 2 to 4 weeks of filing.
• Full Damages Trial: If the case does not settle after the preliminary injunction ruling, full civil discovery and trial on permanent injunctive relief and monetary damages generally take 9 to 18 months.

Whether you need to update your employment contracts or file an emergency injunction to stop client poaching, you can use our directory to connect with an experienced South Dakota employment litigation lawyer.

Frequently Asked Questions (FAQ)