Are Non-Compete Agreements Enforceable in South Dakota? A Guide to SDCL 53-9-11

Receiving a cease-and-desist letter from a former employer in Sioux Falls or Rapid City days before starting a new position with a local competitor can immediately jeopardize your career and household income. Unlike states that rely solely on flexible common-law balancing tests, South Dakota regulates workplace restrictive covenants through a strict statutory framework that voids restraints of trade by default unless the contract satisfies specific legislative criteria.

Whether you are a sales executive in Minnehaha County, an engineer in Pennington County, or a business owner in Brown County drafting employment contracts, evaluating a non-compete agreement in South Dakota requires analyzing the exact text of the statute, the timing of the signature, and recent statutory exemptions. This guide breaks down how South Dakota courts evaluate restrictive covenants, the strict geographic and temporal ceilings, and the exact steps to challenge or enforce an agreement in local circuit courts.

The General Rule: Restraints of Trade Under South Dakota Law

In South Dakota, the foundational legal baseline is that any contract restraining a person from exercising a lawful profession, trade, or business is void to that extent under S.D. Codified Laws § 53-9-8. Because the legislature views open competition as vital to the state economy, an employer cannot enforce a post-employment restriction unless it falls squarely within one of three narrow statutory exceptions:

• Sale of Business Goodwill: Under S.D. Codified Laws § 53-9-9, a person who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within a specified county, city, or part thereof, for as long as the buyer or successor continues a like business there.
• Dissolution of a Partnership: Under S.D. Codified Laws § 53-9-10, partners dissolving a partnership may agree that none of them will carry on a similar business within the same municipality where the partnership transacted business.
• Employment and Independent Contractor Agreements: Under S.D. Codified Laws § 53-9-11, an employee or independent contractor may agree with an employer not to engage directly or indirectly in the same business or profession, and not to solicit existing customers of the employer, within a specified geographic area for up to 2 years from the date of termination.

Furthermore, the South Dakota Legislature enacted a sweeping industry-specific prohibition under S.D. Codified Laws § 53-9-11.1, which declares void any contract that restricts a health care practitioner-including physicians, physician assistants, certified nurse practitioners, certified registered nurse anesthetists, and registered nurses-from practicing or treating patients after leaving an employer, except in connection with the bona fide sale of a medical practice under S.D. Codified Laws § 53-9-11.2. A separate specialized rule also governs captive insurance companies under S.D. Codified Laws § 53-9-12.

When a non-compete agreement complies on its face with the statutory boundaries of S.D. Codified Laws § 53-9-11 and is signed at the inception of employment, the South Dakota Supreme Court, Pierre held in American Rim & Brake, Inc. v. Zoellner, 382 N.W.2d 421 (SD Supreme Court 1986) that courts generally do not need to conduct a separate common-law reasonableness inquiry. However, in Central Monitoring Service, Inc. v. Zakinski, 553 N.W.2d 513 (SD Supreme Court 1996), the court clarified that if an employer asks an existing employee to sign a non-compete agreement mid-employment without quitting or receiving a formal promotion, the restriction is scrutinized more closely to ensure it is reasonable and does not impose undue hardship.

Statutory Boundaries of SDCL 53-9-11

To determine whether a non-compete agreement is enforceable in South Dakota, employment attorneys examine three statutory pillars established by S.D. Codified Laws § 53-9-11: duration, geographic designation, and scope of restricted business activity.

The Two-Year Statutory Maximum

Under S.D. Codified Laws § 53-9-11, the maximum permissible duration for both a non-competition covenant and a customer non-solicitation covenant is any period not exceeding two years from the date of termination of the agreement. An employer cannot extend this clock by drafting a three-year or five-year post-employment ban.

If an employment contract specifies a restriction lasting longer than 24 months, South Dakota courts will not enforce the excess time. Instead, as demonstrated in Ward v. Midcom, Inc., 575 N.W.2d 233 (SD Supreme Court 1998), a circuit judge may modify and enforce the restriction up to the statutory 2-year ceiling, provided the agreement is otherwise valid under state law.

County vs. City Restrictions

The geographic language of S.D. Codified Laws § 53-9-11 permits restrictions within a specified county, first or second class municipality, or other specified area, so long as the employer continues to carry on a like business therein. Under S.D. Codified Laws § 9-2-1, South Dakota classifies municipalities by population: first-class municipalities have a population of 5,000 or more (such as Sioux Falls, Rapid City, Aberdeen, Brookings, Watertown, Mitchell, Yankton, Pierre, and Huron), while second-class municipalities have a population between 500 and 4,999.

Historically, an older version of the statute limited non-competes to a single county or city. However, in Franklin v. Forever Venture, Inc., 696 N.W.2d 545 (SD Supreme Court 2005), the South Dakota Supreme Court, Pierre examined the legislative amendments to S.D. Codified Laws § 53-9-11 and confirmed that employers may designate multiple specified counties, municipalities, or defined market areas, provided two strict conditions are met:

1. The geographic area must be expressly specified in the contract so the employee knows the exact boundaries at the time of signing.
2. The employer must actively carry on a like business within each listed county or municipality during the restricted period.

Can an Employer Enforce a Statewide Ban?

In almost all standard employment disputes, a blanket statewide ban-or a vague radius ban covering regions where the employer has no active customers or operations-is unenforceable as written under S.D. Codified Laws § 53-9-11. For example, if a company operates exclusively in Minnehaha County and Lincoln County around Sioux Falls, it cannot enforce a covenant barring a former salesperson from working in Pennington County (Rapid City) or Brown County (Aberdeen) where the company conducts no business.

In Simpson v. C & R Supply, Inc., 598 N.W.2d 914 (SD Supreme Court 1999), the court struck down an overbroad geographic boundary and restricted enforcement exclusively to the specific local market where the employer actually conducted business and where the employee worked. Similarly, under 1st American Systems, Inc. v. Rezatto, 311 N.W.2d 51 (SD Supreme Court 1981), covenants protecting legitimate trade secrets or customer relationships are narrowed to prevent employers from monopolizing territories beyond their actual commercial footprint.

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

Whether you live in Sioux Falls, Rapid City, Aberdeen, Brookings, or Pierre, resolving a dispute over a South Dakota restrictive covenant follows a structured legal sequence in the state's Unified Judicial System.

Step 1: Gathering Documents and Auditing Consideration Timing

Begin by collecting your signed employment offer letter, the standalone non-compete or confidentiality agreement, employee handbook acknowledgments, job descriptions, and termination notices. Check the exact date you signed the restrictive covenant compared to your first day of work. Under Central Monitoring Service, Inc. v. Zakinski, 553 N.W.2d 513 (SD Supreme Court 1996), whether you signed the agreement at initial hire or months later during ongoing employment significantly impacts whether the court will analyze the fairness and reasonableness of the restriction.

Step 2: Verifying Geographic Scope and Industry Exemptions

Map the exact counties or municipalities listed in the contract against the locations where your former employer actively serves clients. Also confirm whether your occupation qualifies for automatic statutory immunity under S.D. Codified Laws § 53-9-11.1 as a licensed health care professional, or whether the agreement is an unenforceable inter-company no-hire pact prohibited under Communication Technical Systems, Inc. v. Densmore, 583 N.W.2d 125 (SD Supreme Court 1998).

Step 3: Responding to Cease-and-Desist Demands or Negotiating Releases

Before a lawsuit is filed, the former employer's legal counsel typically sends a cease-and-desist letter demanding written assurances that you will not work for a competitor or solicit clients. Do not ignore this letter or contact your former boss directly. A local South Dakota employment lawyer from our directory can respond on your behalf, point out statutory defects under S.D. Codified Laws § 53-9-8, and negotiate a written carve-out that allows you to keep your new job while agreeing not to solicit specific named accounts.

Step 4: Filing a Declaratory Judgment or Injunction Action in Circuit Court

If negotiations fail, either party can initiate a civil lawsuit in the appropriate South Dakota Circuit Court. An employee seeking to clear their name before starting a new job may file a complaint for declaratory relief under S.D. Codified Laws § 21-24-1, asking a judge to declare the covenant void or narrow its territory. Conversely, an employer may file a complaint for breach of contract and request a temporary restraining order or preliminary injunction under S.D. Codified Laws § 15-6-65(a).

Initial filings require submitting Form UJS-232, South Dakota, Unified Judicial System, Civil Case Filing Statement along with the complaint and a summons issued pursuant to S.D. Codified Laws § 15-6-4(a). Depending on the county where the dispute arose, filings are submitted to the local clerk of courts, such as the Second Judicial Circuit Court, Minnehaha County, Sioux Falls, the Second Judicial Circuit Court, Lincoln County, Canton, the Seventh Judicial Circuit Court, Pennington County, Rapid City, the Fifth Judicial Circuit Court, Brown County, Aberdeen, or the Sixth Judicial Circuit Court, Hughes County, Pierre. If the employer is headquartered out of state and the amount in controversy exceeds $75,000, the case may be filed in or removed to the U.S. District Court for the District of South Dakota, Sioux Falls or the U.S. District Court for the District of South Dakota, Rapid City using Form JS 44, FED, U.S. District Court, Civil Cover Sheet and Form AO 440, FED, U.S. District Court, Summons in a Civil Action.

Step 5: Litigating Temporary Restraining Orders and Evidentiary Hearings

In non-compete litigation, the decisive battle usually occurs within the first few weeks at the preliminary injunction hearing. The court evaluates whether the employer faces irreparable harm, whether the covenant complies with S.D. Codified Laws § 53-9-11, and whether the territory or timeframe must be narrowed before any injunction is issued.

How Much Does it Cost in South Dakota?

The financial cost of reviewing, negotiating, or litigating a non-compete agreement in South Dakota varies based on whether the dispute settles out of court or proceeds to an injunction hearing:

• Contract Review and Cease-and-Desist Response: Hiring a South Dakota employment attorney to review an agreement and draft a formal response letter typically costs between $350 and $900 as a flat fee or at hourly rates ranging from $250 to $450 per hour.
• South Dakota Circuit Court Filing Fees: Filing a civil complaint or declaratory judgment action in a state circuit court requires a total statutory fee of $72.00 ($25 base filing fee under S.D. Codified Laws § 16-2-29(3)(a), a $40 court automation surcharge under S.D. Codified Laws § 16-2-39, and a $7 law library fee under S.D. Codified Laws § 14-6-1).
• Federal Court Filing Fees: If the lawsuit is filed in or removed to federal court based on diversity of citizenship, the filing fee is $405.
• Service of Process Fees: County sheriff or private process server fees in South Dakota generally run $50 to $95 per defendant, unless service is acknowledged or accepted pursuant to S.D. Codified Laws § 15-6-4(j).
• Injunction and Litigation Retainers: Defending or prosecuting a contested preliminary injunction hearing in Sioux Falls or Rapid City typically requires an initial legal retainer of $5,000 to $15,000, while full discovery and trial can range from $15,000 to $40,000+. Under S.D. Codified Laws § 15-17-38, each side generally pays its own attorney's fees unless the contract contains a valid fee-shifting clause or the lawsuit involves trade secret misappropriation under S.D. Codified Laws § 37-29-1.

How Long Does the Process Take?

Non-compete disputes move significantly faster than standard civil lawsuits because employers often seek immediate emergency court orders:

• Attorney Review and Pre-Suit Negotiation: Reviewing the contract and negotiating a written carve-out or release typically takes 5 to 14 business days.
• Temporary Restraining Order (TRO) Proceedings: Under S.D. Codified Laws § 15-6-65(a), an emergency TRO motion can be heard by a circuit judge within 2 to 10 days of filing.
• Preliminary Injunction Hearing: An evidentiary hearing on a preliminary injunction usually takes place within 30 to 60 days after the complaint is served.
• Declaratory Judgment or Summary Judgment Resolution: If the dispute continues past the preliminary injunction stage to summary judgment under S.D. Codified Laws § 15-6-56 or a bench trial, full resolution generally takes 6 to 12 months.

If you are facing a restrictive covenant threat or need to protect your business accounts, browsing our directory of verified South Dakota employment lawyers can help you connect with local counsel in Sioux Falls, Rapid City, or Aberdeen who regularly handle S.D. Codified Laws § 53-9-11 litigation.

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