Non-Solicitation vs. Non-Compete Agreements in South Dakota: What is the Difference?

Before resigning from a wealth management firm in Sioux Falls, an agricultural supply company in Brookings, or an insurance agency in Rapid City, reviewing the fine print of your employment contract can prevent a costly courtroom battle. Many South Dakota professionals use the terms "non-compete" and "non-solicitation" interchangeably, yet the legal consequences of each clause are vastly different. One can completely block you from working in your chosen industry within your home county, while the other allows you to join a competitor across the street so long as you do not actively initiate contact with your former clients.

Unlike states that rely on vague judicial balancing tests, South Dakota regulates restrictive covenants through a strict statutory framework. Under S.D. Codified Laws § 53-9-8, every contract restraining the exercise of a lawful profession, trade, or business is void by default unless it fits squarely inside a narrow statutory exception. Consulting an experienced South Dakota employment attorney from our directory can help you determine whether your restrictive covenant is legally enforceable or void on its face.

Core Legal Distinctions Under South Dakota Law

The primary exception allowing post-employment restrictions in South Dakota is codified at S.D. Codified Laws § 53-9-11. This statute permits an employee to agree with an employer, at the time of hiring or during employment, to two distinct types of restrictions lasting no more than two years from the date of termination of the agreement, provided the employer continues to carry on a like business:

• Non-Compete Agreements: A covenant not to engage directly or indirectly in the same business or profession as that of the employer within a specified county, first- or second-class municipality, or other specified geographic area.
• Customer Non-Solicitation Agreements: A covenant not to solicit existing customers of the employer within a specified county, municipality, or geographic area.

In Aqreva, LLC v. Eide Bailly, LLP, 950 N.W.2d 774 (SD Supreme Court 2020), the South Dakota Supreme Court outlined a strict three-part test to evaluate any restrictive covenant under S.D. Codified Laws § 53-9-8: (1) whether the conduct concerns a lawful profession, trade, or business; (2) whether the contract imposes a material restraint upon exercising that profession; and (3) whether one of the narrow statutory exceptions in S.D. Codified Laws § 53-9-9 through S.D. Codified Laws § 53-9-12 applies. In Aqreva, the Court refused to enforce a non-compete in a consulting contract because the restricted party was an independent contractor rather than an employee, proving how strictly South Dakota courts construe the statutory text.

Additionally, under S.D. Codified Laws § 53-9-11.2, South Dakota prohibits non-compete agreements for licensed healthcare practitioners-including physicians, physician assistants, certified nurse practitioners, and nurses-leaving medical professionals free to care for patients without geographic job bans.

Customer Non-Solicitation Rules in SD

The most heavily litigated issue in South Dakota employment law is what happens when a former customer voluntarily decides to follow a departing employee to a new company without being asked. Employers frequently draft aggressive "non-acceptance" or "no-service" clauses that prohibit a former employee not only from soliciting clients, but also from selling to or accepting business from any former customer who reaches out on their own.

In the landmark decision Farm Bureau Life Ins. Co. v. Dolly, 910 N.W.2d 196 (SD Supreme Court 2018), the South Dakota Supreme Court struck down this practice. Analyzing a captive insurance agent contract under S.D. Codified Laws § 53-9-12 (which mirrors the solicitation language of S.D. Codified Laws § 53-9-11), the Supreme Court held that an agreement "not to sell" to existing customers who reach out independently is not the same as an agreement "not to solicit." Because banning unsolicited business is neither a true non-compete nor a statutory non-solicitation agreement, the Court ruled that prohibiting an employee from accepting unsolicited customers is void under S.D. Codified Laws § 53-9-8.

The U.S. Court of Appeals for the Eighth Circuit reinforced this rule in Miller v. Honkamp Krueger Fin. Servs., Inc., 9 F.4th 1011 (8th Cir. 2021). In Miller, a South Dakota financial advisor joined a competing wealth management firm under a contract containing an Iowa choice-of-law clause and a broad non-solicitation provision barring her from "accepting" former clients. The Eighth Circuit threw out the preliminary injunction against her, ruling that South Dakota public policy overrides out-of-state choice-of-law clauses and strictly forbids employers from stopping former employees from serving clients who initiate contact on their own.

Anti-Poaching Clauses for Former Co-Workers

In addition to client restrictions, many South Dakota employment contracts and severance agreements include employee non-solicitation or "anti-poaching" clauses that bar a departing worker from recruiting former colleagues. When evaluating these clauses, South Dakota courts draw a sharp line between agreements signed directly by an employee and back-room "no-hire" pacts between two companies.

In Communication Technical Systems, Inc. v. Densmore, 583 N.W.2d 125 (SD Supreme Court 1998), a programming firm and Gateway 2000 entered into a "no-switching" agreement promising not to hire or solicit each other's personnel for one year. When a consultant left the programming firm and began working for Gateway in South Dakota, his former employer sued both him and Gateway. The South Dakota Supreme Court declared the no-hire agreement void as an unlawful restraint of trade under S.D. Codified Laws § 53-9-8, emphasizing that an employer cannot enjoy the benefits of at-will employment while secretly restricting an employee's job mobility through a third-party contract the employee never signed.

Where an employee directly signs an anti-poaching clause agreeing not to actively recruit co-workers, courts apply the Aqreva, LLC v. Eide Bailly, LLP, 950 N.W.2d 774 (SD Supreme Court 2020) framework. While a narrowly tailored promise not to actively initiate recruitment of former subordinates may survive if it does not materially restrain the employee's own profession, any clause that bars a new employer from hiring former co-workers who apply independently to public job postings is unenforceable in South Dakota.

Can You Be Sued for a LinkedIn Update?

When transitioning to a new employer in Sioux Falls, Rapid City, or Pierre, professionals often worry whether updating their LinkedIn profile or posting a career update violates a customer or employee non-solicitation agreement. Under the strict solicitation standard established in Farm Bureau Life Ins. Co. v. Dolly, 910 N.W.2d 196 (SD Supreme Court 2018), "solicitation" requires an active, targeted effort to induce a specific customer to move their business.

• Permissible Passive Updates: Changing your employer name and job title on LinkedIn, publishing a general public post announcing your new position and contact information, or accepting connection requests initiated by former clients generally does not constitute unlawful solicitation under South Dakota law.
• High-Risk Active Solicitation: Sending direct LinkedIn InMail messages or text messages to former clients asking them to transfer their accounts, tagging specific former clients in promotional posts, or using downloaded customer lists from your former employer can trigger a breach-of-contract lawsuit and a misappropriation claim under the South Dakota Uniform Trade Secrets Act, S.D. Codified Laws § 37-29-1.

Step-by-Step Process in South Dakota

If you are planning a job change in Minnehaha County, Pennington County, Lincoln County, or Brown County and have a non-compete or non-solicitation agreement, follow these steps before giving notice.

Step 1: Check the Contract Expiration and Survival Language

Examine the exact wording of your employment agreement's term and termination clauses. In both Miller v. Honkamp Krueger Fin. Servs., Inc., 9 F.4th 1011 (8th Cir. 2021) and Wilbur-Ellis Co. v. Erikson, 103 F.4th 1352 (8th Cir. 2024), the Eighth Circuit ruled that because S.D. Codified Laws § 53-9-11 measures the two-year limit "from the date of termination of the agreement," a restrictive covenant becomes completely unenforceable if the employment contract expired or was terminated without an explicit survival clause extending the covenant beyond the contract's end date.

Step 2: Verify Statutory Exemptions for Your Profession

Confirm whether you were classified as an independent contractor (which invalidates the restriction under Aqreva, LLC v. Eide Bailly, LLP, 950 N.W.2d 774 (SD Supreme Court 2020)) or whether you are a licensed healthcare provider protected by S.D. Codified Laws § 53-9-11.2. Also inspect whether the contract defines a specific county or municipality; a nationwide or boundless geographic ban violates S.D. Codified Laws § 53-9-11.

Step 3: Perform a Clean Digital Departure

Never email client spreadsheets, pricing models, or contact lists to a personal account before resigning. Under S.D. Codified Laws § 37-29-2 and S.D. Codified Laws § 37-29-3, a former employer can obtain an injunction and recover double damages for willful trade secret misappropriation even if your non-compete clause is completely invalid.

Step 4: Document Unsolicited Client Inquiries

If former clients contact you at your new company in South Dakota, ask them to sign a brief written acknowledgment confirming that they located you independently and initiated contact without any solicitation on your part. Under Farm Bureau Life Ins. Co. v. Dolly, 910 N.W.2d 196 (SD Supreme Court 2018), this documentation is your strongest defense against a temporary restraining order.

Step 5: File a Declaratory Judgment Action if Threatened

If your former employer sends a cease-and-desist letter threatening your new job, a local employment attorney can file a preemptive lawsuit for declaratory judgment under S.D. Codified Laws § 21-24-1 to have a judge declare the overbroad covenant void. State actions are filed using Form UJS-232, South Dakota, Unified Judicial System, Civil Case Filing Statement in the Minnehaha County Circuit Court, Sioux Falls, the Pennington County Circuit Court, Rapid City, or the Hughes County Circuit Court, Pierre, while diversity cases may proceed in 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.

How Much Does It Cost in South Dakota?

Evaluating or litigating a non-compete or non-solicitation agreement in South Dakota involves the following typical expenses:

• Attorney Contract Review and Risk Assessment: A flat-fee legal consultation to analyze your employment agreement under South Dakota statutes typically costs between $300 and $750.
• Cease-and-Desist Letter Response or Release Negotiation: Hiring a lawyer to respond to a former employer's threat letter or negotiate a buyout/carve-out generally costs $750 to $2,500.
• Court Filing Fees: Filing a civil declaratory judgment complaint in a South Dakota Circuit Court costs $72.00 under S.D. Codified Laws § 16-2-29. Filing or removing a case to federal court in the District of South Dakota costs $405.
• Preliminary Injunction Litigation: Defending or prosecuting an emergency temporary restraining order (TRO) and preliminary injunction hearing under S.D. Codified Laws § 15-6-65 or Fed. R. Civ. P. 65 is intensive and typically ranges from $5,000 to $25,000+ in legal fees.

How Long Does the Process Take?

Restrictive covenant disputes move much faster than standard civil lawsuits because employers typically seek immediate injunctive relief:

• Statutory Restriction Cap: Under S.D. Codified Laws § 53-9-11, no non-compete or customer non-solicitation agreement in South Dakota can legally last longer than 24 months (2 years) from the termination of the agreement.
• Emergency TRO and Preliminary Injunction Hearings: Once a lawsuit is filed, a temporary restraining order motion can be heard within 2 to 7 business days, followed by an evidentiary preliminary injunction hearing within 2 to 6 weeks.
• Declaratory Judgment Resolution: Most South Dakota restrictive covenant disputes settle or are resolved on summary judgment within 3 to 8 months after the court rules on the preliminary injunction motion.

Frequently Asked Questions (FAQ)