Employers in South Carolina faced with litigation might have an easier time winning motions for summary judgment, noncompete agreements remain in the crosshairs, and the North Carolina Supreme Court offered some rare how-to tips on avoiding messy privilege issues. Those are a few takeaways from Parker Poe’s review of the major trends and cases in North Carolina and South Carolina business litigation over the past year.
Our team analyzed rulings and developments impacting how summary judgments could be granted more frequently, privilege issues, attorneys' fees and other sanctions, and noncompete agreements. Below are highlights of our year-in-review, including what these developments mean for businesses in North Carolina and South Carolina.
South Carolina Business Court Developments
There were two significant cases from 2023 in South Carolina Business Court that could have lasting effects for employers there.
First, a ruling in a case between a kitchen cabinet supplier and a homeowner meant the fall of what’s known as the "mere scintilla" standard. Adopted in 2009, the standard meant motions for summary judgment could be denied when a scintilla or "glimmer" of evidence existed to bring the case before a full jury. With the overruling of the standard, judges may begin to grant summary judgment more frequently.
The second key ruling stemmed from a vehicle accident involving a truck driven by an independent contractor. A complaint alleged that the company who hired the driver was negligent in its selection. The core question of the case became whether a company can be held liable for harm caused by hiring an independent contractor.
The South Carolina Supreme Court answered yes, and said its ruling was consistent with a majority of other states. In its analysis, the court outlined four elements to meeting the question of negligence. The top reason was that plaintiffs must prove the principal (or company) did not exercise reasonable care.
Though the court downplayed the significance of its decision, there will likely be an uptick in these cases as plaintiffs will start asserting the claims to test the new ruling.
Privilege Issues in North Carolina
The issue of joint representation can become messy between an attorney and clients. After a particularly messy cases last year, the North Carolina Supreme Court offered some steps on avoiding the drama.
Step one: Avoid joint representation. Attorneys can choose not to represent both a company and its directors, officers, or employees. Step two: Distinguish corporate and litigation attorneys in your engagement letter. The third step would be to verbally clarify the scope of representation.
This last step could look like a corporate attorney offering a clear disclaimer of representation and that the participants must consult their own counsel if they seek personal legal advice about a subject matter.
Update on Noncompete Agreements After Federal Trade Commission Proposal
At the start of last year, the Federal Trade Commission sent the employment and litigation world spinning when it proposed a rule that, if enacted, would operate as a prohibition of noncompete agreements. Even more, the rule does not restrain itself to only noncompete agreements but instead focuses on any agreement that has the "effect" of limiting post-separation employment. This broad restriction could apply to non-solicitation, non-disclosures, and no-poach agreements, further underscoring the caution and diligence employers must take in drafting such agreements.
The proposal saw tens of thousands of comments, mostly from employers, various industry groups, and lawmakers upset about the potential impact on post-separation arrangements.
The FTC seems most concerned with what it views as an inherent difference in bargaining power between employers and employees, which it defines as pressure put on employees to agree to restrictive covenants to secure employment.
The FTC is expected to vote on the proposal in April, but that date is subject to change. The agency has not yet released any information about when it intends to vote on the final rule, whether a new proposed rule will be issued, or whether any final rule will address the main concerns of many comments submitted. If adopted in present form, however, there will likely be significant legal challenges that could slow down its implementation even further, including constitutional challenges that are likely to work their way up to the U.S. Supreme Court.
Even more, the Workforce Mobility Act was reintroduced last year and brings similar prohibitions against employers using noncompete agreements. Though introduced as a bipartisan bill, it made little progress in Congress last year and is unlikely to pass any time soon. However, it nonetheless reflects a growing federal sentiment that noncompete agreements are a thing of the past and are not welcome in the modern employment setting.
Employers, especially those in multiple states or with remote workers, should carefully assess the need for noncompete agreements and whether other narrowly tailored alternatives are sufficient to protect their business interests.
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