How the 'Blue Pencil' Doctrine Modifies Overbroad Non-Competes in South Dakota

Many employees in Sioux Falls, Rapid City, and Brookings assume that if their employment contract contains an illegal five-year non-compete clause or a multi-state territorial ban, the entire restriction is automatically dead on arrival. Acting on that assumption by immediately joining a competing firm across the street can trigger a costly preliminary injunction lawsuit in a South Dakota Circuit Court.

Rather than throwing out an overbroad restrictive covenant in its entirety, South Dakota courts follow a judicial modification doctrine-commonly called the "blue pencil" or partial enforcement rule-to trim excessive duration and geographic terms until they fit neatly inside the statutory boundaries of S.D. Codified Laws § 53-9-11. Below is a comprehensive breakdown of how South Dakota judges modify overbroad contracts, the critical exceptions where a court will refuse to save a defective agreement, and what it costs to litigate modification in court.

Understanding the Blue Pencil and Partial Enforcement Rules in South Dakota

Across the United States, states handle overbroad non-compete agreements in one of three ways: "red-penciling" (striking down the entire covenant if any single part is overbroad), strict grammatical "blue-penciling" (crossing out offending words only if the remaining words still form a grammatically coherent sentence), or equitable reformation / "partial enforcement" (modifying the scope of the restriction to the maximum extent permitted by law). South Dakota firmly embraces the partial enforcement approach grounded in the phrasing of S.D. Codified Laws § 53-9-8, which states that a contract restraining trade is void "to that extent".

What is Judicial Modification?

Judicial modification allows a South Dakota circuit judge to sever or scale back the unenforceable excess of a restrictive covenant while enforcing the remainder up to the statutory limits of S.D. Codified Laws § 53-9-11. The South Dakota Supreme Court, Pierre first established this rule in Loescher v. Policky, 173 N.W.2d 50 (SD Supreme Court 1969), pointing out that because S.D. Codified Laws § 53-9-8 invalidates a restraint only "to that extent," the legislature intended for courts to pare back excessive time or territory rather than invalidate the entire bargain.

Over subsequent decades, South Dakota Supreme Court decisions have demonstrated exactly how judicial modification operates in real cases:

• Trimming Excessive Time Limits: If an employer drafts a three-year or five-year non-compete agreement, a court will reduce the duration to the statutory maximum of 2 years from the date of termination under S.D. Codified Laws § 53-9-11.
• Shrinking Overbroad Geographic Territories: In Ward v. Midcom, Inc., 575 N.W.2d 233 (SD Supreme Court 1998) and Simpson v. C & R Supply, Inc., 598 N.W.2d 914 (SD Supreme Court 1999), the South Dakota Supreme Court, Pierre addressed covenants with excessive geographic descriptions and narrowed them so they applied only within the specific county or local market where the employer actively conducted business.
• Separating Non-Disclosure From Non-Compete Clauses: In 1st American Systems, Inc. v. Rezatto, 311 N.W.2d 51 (SD Supreme Court 1981), the court held that even when a covenant contains overbroad anti-competitive language, a judge can sever those provisions and enforce valid confidentiality and customer protection clauses to the extent allowed by statute.

When Will a Judge Refuse to Rewrite a Contract?

Although South Dakota's partial enforcement doctrine gives employers a wide safety net, judicial modification is not limitless. A South Dakota judge will refuse to rewrite or enforce a restrictive covenant in several critical situations:

1. Statutorily Prohibited Healthcare Covenants: Under S.D. Codified Laws § 53-9-11.1, non-compete agreements restricting physicians, physician assistants, certified nurse practitioners, nurse anesthetists, and registered nurses from practicing their profession are completely void (unless part of the sale of a medical practice under S.D. Codified Laws § 53-9-11.2). A judge cannot "blue-pencil" an illegal physician non-compete into a shorter timeframe because any restriction at all is barred by statute.
2. Unreasonable Mid-Employment Covenants Without Valid Basis: In Central Monitoring Service, Inc. v. Zakinski, 553 N.W.2d 513 (SD Supreme Court 1996), the South Dakota Supreme Court, Pierre ruled that when an employee is required to sign a non-compete agreement after already working for the employer-without receiving additional consideration or a change in status-the court must apply a three-part reasonableness test. If the covenant is not necessary to protect the employer's legitimate business interest or imposes undue hardship on a terminated employee, the court can refuse to enforce it entirely.
3. Restraints Falling Completely Outside Statutory Exceptions: In Communication Technical Systems, Inc. v. Densmore, 583 N.W.2d 125 (SD Supreme Court 1998), two businesses signed an agreement prohibiting one company from hiring the other company's employees. Because that agreement was neither a sale of goodwill under S.D. Codified Laws § 53-9-9 nor an employer-employee agreement under S.D. Codified Laws § 53-9-11, the court held it was completely void under S.D. Codified Laws § 53-9-8 and could not be salvaged by judicial modification.
4. Absence of Any Specified Geographic Area or Active Operations: Under Franklin v. Forever Venture, Inc., 696 N.W.2d 545 (SD Supreme Court 2005), S.D. Codified Laws § 53-9-11 requires a "specified county, first or second class municipality, or other specified area" where the employer carries on a like business. If the employer has ceased operations in that area or breached the underlying employment contract first (such as failing to pay earned wages under S.D. Codified Laws § 60-11-10), equitable relief will generally be denied.

Step-by-Step Process in South Dakota for Litigating an Overbroad Covenant

Whether your dispute arises in Sioux Falls, Rapid City, Aberdeen, Brookings, or Yankton, navigating an overbroad non-compete requires a disciplined strategy before and during court proceedings.

Step 1: Gathering Documents and Comparing Clauses Against SDCL 53-9-11

Collect the signed employment contract, any subsequent addenda, commission plans, and documents showing the exact counties where you worked and where the company generated revenue. Highlight every term that exceeds 24 months or extends beyond the counties and municipalities where your employer actively conducts business under S.D. Codified Laws § 53-9-11.

Step 2: Separating Severable Non-Disclosure and Non-Solicitation Provisions

Review the agreement's severability clause and distinguish between a general ban on working for a competitor, a customer non-solicitation clause, and a trade secret non-disclosure clause. Under 1st American Systems, Inc. v. Rezatto, 311 N.W.2d 51 (SD Supreme Court 1981), even if you persuade the court to narrow the geographic non-compete, you must still strictly avoid taking customer lists or proprietary pricing protected by S.D. Codified Laws § 37-29-1.

Step 3: Proposing a Pre-Litigation Stipulated Modification

Because South Dakota courts frequently modify overbroad agreements rather than voiding them outright, walking into court hoping for a total invalidation is risky. Instead, an experienced South Dakota employment attorney can send a formal settlement proposal offering to abide by a voluntarily narrowed version of the covenant-for example, agreeing not to solicit the specific 25 customers you personally serviced in Minnehaha County for 12 to 24 months, in exchange for a written release allowing you to work for your new employer.

Step 4: Filing Pleadings or Partial Summary Judgment Motions in Circuit Court

If the employer refuses to negotiate and files a lawsuit seeking to enforce the overbroad clause as written-or if you file preemptively for declaratory relief under S.D. Codified Laws § 21-24-1-the case is initiated in the local circuit court using Form UJS-232, South Dakota, Unified Judicial System, Civil Case Filing Statement and a summons issued pursuant to S.D. Codified Laws § 15-6-4(a). Key venues include the Second Judicial Circuit Court, Minnehaha County, Sioux Falls, the Seventh Judicial Circuit Court, Pennington County, Rapid City, the Third Judicial Circuit Court, Brookings County, Brookings, the Fifth Judicial Circuit Court, Brown County, Aberdeen, and the First Judicial Circuit Court, Yankton County, Yankton. Once service is completed or acknowledged pursuant to S.D. Codified Laws § 15-6-4(j), defense counsel can file a motion to dismiss under S.D. Codified Laws § 15-6-12(b) or a motion for partial summary judgment under S.D. Codified Laws § 15-6-56 to strike down the unenforceable excess immediately.

Step 5: Presenting Evidence at the Injunction and Modification Hearing

At the preliminary injunction hearing under S.D. Codified Laws § 15-6-65(a), your lawyer will present affidavits, sales territory records, and testimony showing why the covenant fails the reasonableness standards of Central Monitoring Service, Inc. v. Zakinski, 553 N.W.2d 513 (SD Supreme Court 1996) or why any modified injunction must be restricted to a narrow municipal footprint under Simpson v. C & R Supply, Inc., 598 N.W.2d 914 (SD Supreme Court 1999).

Cost to Defend an Overbroad Agreement in Court

Defending against an overbroad non-compete lawsuit in South Dakota involves court costs, process fees, and attorney billing that scale with the aggressiveness of the former employer:

• Pre-Litigation Legal Opinion and Negotiation: Having a South Dakota employment lawyer analyze the blue-pencil risks of your contract and negotiate a narrowed written stipulation typically costs $500 to $1,800.
• Circuit Court and Federal Filing Fees: Filing a declaratory judgment lawsuit or counterclaim in a South Dakota Circuit Court costs a total of $72.00 ($25 filing fee under S.D. Codified Laws § 16-2-29(3)(a), a $40 automation fee under S.D. Codified Laws § 16-2-39, and a $7 law library fee under S.D. Codified Laws § 14-6-1). If the case is litigated in the U.S. District Court for the District of South Dakota, Sioux Falls, the U.S. District Court for the District of South Dakota, Rapid City, or the U.S. District Court for the District of South Dakota, Pierre, the federal civil filing fee is $405.
• Hourly Employment Litigation Rates: Experienced employment litigators in Sioux Falls and Rapid City typically bill between $275 and $500 per hour.
• Preliminary Injunction Defense Retainer: Contesting a motion for a temporary restraining order and preliminary injunction generally requires a retainer of $5,000 to $15,000, covering expedited briefs, affidavits, and the evidentiary court hearing.
• Full Litigation Through Summary Judgment or Appeal: Taking a case through depositions, summary judgment motions under S.D. Codified Laws § 15-6-56, or an appeal to the South Dakota Supreme Court, Pierre typically costs between $15,000 and $45,000+. Under S.D. Codified Laws § 15-17-38, South Dakota follows the American Rule where each party bears its own attorney's fees unless a valid statutory or contractual exception applies.

How Long Does the Process Take?

Because judicial modification often takes place during preliminary injunction proceedings, the timeline moves in distinct stages:

• Pre-Suit Stipulated Modification: Negotiating a narrowed geographic or account-based agreement out of court usually takes 1 to 3 weeks.
• Emergency TRO and Preliminary Injunction Ruling: Once a complaint and motion under S.D. Codified Laws § 15-6-65(a) are filed, a circuit judge typically conducts a hearing and issues an order modifying or denying the preliminary injunction within 2 to 8 weeks.
• Summary Judgment and Final Declaratory Order: Resolving all remaining claims via summary judgment or bench trial generally takes 5 to 10 months, while an appeal to the South Dakota Supreme Court, Pierre adds another 6 to 12 months.

Before assuming an overbroad contract is unenforceable-or giving up a lucrative career opportunity out of fear-you can consult a verified South Dakota employment lawyer in our directory to evaluate how a local judge is likely to blue-pencil your agreement.

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