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Employee Restrictive Covenant Agreement

Cover Terms

The terms below are incorporated into and form part of this agreement.

Employer[Legal name of the entity that employs the employee]
Employee[Full legal name of the employee]
Employee Title / Position
Effective Date[Effective date of this agreement — the date the last party signs. It anchors the duration presumptions stated in Cover Terms.]
Governing LawSouth Dakota
Confidentiality
Trade Secrets DurationPerpetual
Other Confidential Information Duration24 months
Customer Non-Solicitation
Duration24 months
State-law basis 24 months

Reference only — not part of this agreement.

12 months sits well inside the presumptively reasonable window for a current-customer non-solicit: eighteen months, or for as long as post-separation consideration is paid, whichever is greater. Counsel may extend toward eighteen months, or longer while post-separation consideration is paid, where the interest supports it.

Covered Customer Period12 months
Non-Investment
Duration24 months
Passive Public Holdings Thresholdfive percent
Market benchmark (based on 59 companies)HideShow
TermFrequency
Selected default5%39%
1%27.1%
2%20.3%
Why this selected default?

Why is this the selected default?

Five percent of any class of publicly traded securities is the modal passive-investment carve-out threshold observed in benchmarked, publicly-filed employee agreements that include the carve-out (lower 1-3 percent thresholds are the common tighter alternatives). In a state whose law voids restraints except as it specifically provides, a clause forbidding ordinary public shares is gratuitous overbreadth serving no listed interest.

Non-Disparagement
Duration24 months

Standard Terms

1. Defined Terms

“Competitive Business” means the same business or profession as that of Employer, described in Cover Terms under Competitive Business.

“Confidential Information” means non-public information relating to Employer's business, including trade secrets, customer lists, pricing, business processes, technical data, and strategic plans, but excluding information that becomes public through no fault of Employee.

“Covered Customers” means existing customers of Employer with whom Employee had material contact or for whom Employee had responsibility during the 12 months before termination of the agreement. This definition does not reach prospective customers, former customers, or an entire market.

“Covered Employees” means employees with whom Employee worked or whom Employee managed during the 12 months before termination of the agreement.

“Passive Public Holdings” means ownership of securities of a publicly traded company representing less than five percent of any class of such company's securities, and interests in diversified mutual funds, index funds, and exchange-traded funds that may hold securities of a Competitive Business.

“Protected Interests” means Employer's legitimate interests in its Confidential Information and Trade Secrets, its relationships with its existing customers, and its goodwill.

“Restricted Period” means the duration specified in Cover Terms for each covenant, beginning on the date of termination of this agreement.

“Restricted Territory” means the specified county, first- or second-class municipality, or other specified area described in Cover Terms under Restricted Territory in which Employer continues to carry on a like business.

“Solicit” means to directly or indirectly contact, approach, induce, or encourage any person or entity for the purpose of diverting business away from Employer. Soliciting is affirmative outreach; it does not include accepting, servicing, or selling to a Covered Customer who initiates contact without solicitation by Employee, and it does not include responding to general advertisements or unsolicited inquiries not initiated by Employee.

“Trade Secrets” means information qualifying as a trade secret under applicable law.

2. Recitals and Statutory Basis

Employer and Employee acknowledge that the restrictive covenants protect Employer's Protected Interests and are limited by their stated scope, territory, and duration.

3. Timing, Consideration, and Acknowledgements

Employee agrees to these covenants in exchange for employment, compensation, and access to Employer's Confidential Information. Employee acknowledges having had the opportunity to consult an attorney before signing. This agreement is effective as of the Effective Date listed in Cover Terms.

4. Confidential Information and Trade Secret Protection

Employee must treat all Confidential Information as strictly confidential. Employee must not use or disclose Confidential Information except as required to perform authorized job duties or with Employer's prior written consent. Employee's obligations regarding trade secrets continue in perpetuity for as long as the information remains a trade secret. Employee's obligations regarding other Confidential Information continue for the period specified in Cover Terms.

Drafting Note Confidentiality scope

An NDA drafted as a disguised work ban does not gain South Dakota's protection for confidential information. A confidentiality covenant is strictly construed and enforced only to the extent reasonably necessary to protect the employer's interest in confidential information, so a clause that sweeps past that interest is exposed on the same ground a non-compete would be .

5. Permitted Disclosures and Protected Conduct

Nothing in this agreement prohibits Employee from: (a) reporting possible violations of law to any government agency, including the Securities and Exchange Commission, the Equal Employment Opportunity Commission, the Occupational Safety and Health Administration, or any other federal, state, or local agency; (b) making disclosures protected under whistleblower provisions of any law; (c) discussing wages, hours, or other terms and conditions of employment as protected by applicable law; (d) testifying truthfully in legal proceedings; or (e) filing a sealed complaint in court using Confidential Information without liability. Pursuant to the Defend Trade Secrets Act, 18 U.S.C. § 1833(b), Employee may not be held criminally or civilly liable for disclosing a trade secret in confidence to a government official or attorney solely for the purpose of reporting or investigating a suspected violation of law, or in a sealed court filing.

6. Return, Deletion, and Certification of Company Property

Upon termination of employment, Employee must promptly return to Employer all documents, devices, files, credentials, and other materials containing or relating to Confidential Information. Where permitted, Employee must permanently delete electronic copies of Confidential Information from personal devices and accounts. Employee must certify compliance with this section in writing upon Employer's request.

7. Non-Solicitation of Existing Customers

During the Restricted Period specified in Cover Terms for Customer Non-Solicitation, Employee must not Solicit any Covered Customer within the Restricted Territory while Employer continues to carry on a like business there. This covenant prohibits only affirmative solicitation and does not prohibit Employee from accepting, servicing, or selling to a customer who contacts Employee without solicitation. The Restricted Period does not exceed two years after termination.

Drafting Note Customer solicitation

A South Dakota customer non-solicit that reaches beyond affirmative solicitation — no-service, no-sale, or no-acceptance language — falls outside every statutory exception and into the section 53-9-8 void zone, because an agreement not to solicit is not an agreement not to sell and no exception permits barring acceptance of unsolicited business . A covenant confined to affirmative solicitation of existing customers within the specified area holds where a broader no-dealing clause does not.

8. Non-Investment

During the Restricted Period specified in Cover Terms for Non-Investment, Employee must not acquire or hold any active ownership interest in, serve as a director, officer, manager, or advisor to, or have material economic participation in any Competitive Business within the Restricted Territory. This restriction is subject to the same Restricted Territory, like-business condition, and Restricted Period as the Non-Competition covenant. Passive Public Holdings are permitted.

9. Non-Disparagement

During the Restricted Period specified in Cover Terms for Non-Disparagement, Employee must not make statements that are intended to or reasonably likely to disparage Employer, its officers, directors, employees, products, or services. This section does not restrict Employee from making truthful statements in legal proceedings, providing truthful testimony, making disclosures to government agencies, or exercising rights protected by law, including protected concerted activity under Section 7 of the National Labor Relations Act.

10. Healthcare Practitioner Carve-Out

The post-employment restrictions do not restrict Employee from providing professional services within Employee's applicable licensed scope of practice. This exclusion does not apply to a restriction arising from the sale of a practice or to a permitted restriction on soliciting current patients or clients.

Drafting Note Healthcare practitioner restrictions

For a contract entered into on or after July 1, 2023, section 53-9-11.2 makes a provision restricting a covered practitioner from practicing or providing professional services after the relationship ends voidable — not void — at the practitioner's election, and the statutory class reaches far beyond physicians. Because the provision stands unless the practitioner avoids it, and because the section treats a practice restriction and a compliant current-patient or current-client solicitation restriction differently, a practice restriction bundled with an otherwise-compliant patient non-solicit leaves the compliant piece exposed to the voidable one .

11. No Restraint Through a Third-Party Agreement

Employer's rights under this agreement rest on Employee's own covenants. Employer does not use, and this agreement does not incorporate, any no-hire, no-solicit, or no-recruit clause in any agreement between Employer and a customer, vendor, or other third party as a means of restraining Employee.

Drafting Note Third-party no-hire

A no-poach or no-hire clause in a customer, vendor, or services agreement does not restrain a South Dakota worker who has signed no valid SDCL 53-9-11 covenant: an employer may not bind its own employee through an agreement with a third party, and a court treats the no-recruit clause as a variation on the covenant not to compete governed by section 53-9-11 and the section 53-9-8 baseline . A third-party clause can supplement a valid employee covenant, but it cannot substitute for one.

12. No Conflicting Obligations

Employee represents that performing duties for Employer and complying with this agreement does not conflict with any prior agreement, court order, or legal obligation binding on Employee. Employee must promptly disclose to Employer any potential conflict that arises during employment.

13. Notice to Future Employers and Other Third Parties

Employer may disclose the existence and terms of this agreement to any prospective employer or business associate of Employee if Employer has a reasonable belief that Employee may breach this agreement. Employee consents to this disclosure.

14. Tolling During Breach

If Employee breaches any restrictive covenant in this agreement, Employer may seek to extend the Restricted Period for that covenant by one day for each day of the breach. No extension may cause the Restricted Period to continue for more than two years after termination.

15. Remedies

Employee acknowledges that a breach of this agreement may cause Employer irreparable harm for which money damages would be inadequate, and Employer may seek injunctive or other equitable relief in addition to any other remedies available at law. Employer may also pursue remedies for trade-secret misappropriation available under applicable law.

16. Statutory Fit and Severability

If any provision is unenforceable, it will be enforced to the maximum extent permitted by law, and the remaining provisions will remain in effect.

Drafting Note Statutory fit

A covenant that restrains work but fits no exception in SDCL chapter 53-9 is void to that extent under the baseline statute, which starts from voidness rather than a free-floating reasonableness test . The exceptions are construed narrowly to promote the proscription against general restraints on trade, so a covenant drawn past the exception it invokes is not read charitably back into bounds, and a restraint the chapter voids gives the employer no enforceable covenant to assert .

Drafting Note Partial enforcement

South Dakota recognizes partial enforcement, but a court modifies an overbroad covenant only to conform it to the statutory limits and refuses to read in exceptions the Legislature did not adopt, so a covenant drafted past the chapter 53-9 line is narrowed to the exception at best and void beyond it at worst — never rewritten into the broader restraint the drafter wanted . What survives a failed non-compete is the divisible remainder: section 53-9-8 voids a contract only to the extent it restrains trade, so separable confidentiality and nondisclosure promises can stand even when a covenant falls .

17. Survival and Expiration of Each Covenant

Each restrictive covenant in this agreement expressly survives the termination or expiration of Employee's employment and of this agreement, including the expiration of any fixed term, for the Restricted Period specified in Cover Terms for that covenant. The parties intend this survival to apply covenant by covenant, so that a covenant remains in effect for its Restricted Period even if this agreement otherwise ends by its own terms. Obligations under the Confidential Information and Trade Secret Protection section survive to the extent they relate to trade secrets for as long as the information remains a trade secret. All other provisions survive to the extent necessary to enforce rights that arose during employment.

Drafting Note Covenant survival in a fixed-term agreement

Restrictive covenants in a fixed-term South Dakota agreement that lacks express survival language end when the agreement ends: where the parties performed a fixed-term agreement to its stated end, the Eighth Circuit held the restrictive covenants terminated with it because nothing said they survived . The trap compounds with the statutory clock, which measures the two-year ceiling from the date of termination of the agreement, so the agreement term, the termination language, the per-covenant durations, and the survival clause have to align — a covenant impeccable under section 53-9-11 still fails if the contract ends before the restriction is triggered .

18. Assignment and Successors

Employee may not assign this agreement or any rights or obligations under it. Employer may assign this agreement to any affiliate, successor, or acquirer of all or substantially all of Employer's business or assets. Any assignee or successor takes this agreement subject to all limitations and conditions applicable to Employer and acquires no greater rights than Employer holds under it. This agreement is binding on and inures to the benefit of the parties and their respective heirs, successors, and permitted assigns.

19. Governing Law, Venue, and Dispute Process

This agreement is governed by the law listed in Cover Terms. Disputes will be resolved in the courts of the Governing Law state, subject to non-waivable rights under applicable law.

Drafting Note Out-of-state choice of law

An out-of-state choice-of-law clause does not save a covenant that chapter 53-9 would condemn. South Dakota courts honor a contractual choice of law only until it contravenes South Dakota public policy, and section 53-9-8 is a legislative public-policy expression rather than a private default, so a South Dakota worker, a South Dakota restricted territory, or a South Dakota customer base is measured under chapter 53-9 whatever law the agreement names . A covenant built to satisfy another state's looser rule but not the South Dakota exception stays exposed on the covenant that matters.

20. Entire Agreement, Amendment, Waiver, and Electronic Signatures

This agreement constitutes the entire agreement between the parties regarding its subject matter and supersedes all prior agreements, understandings, and negotiations on this subject. This agreement may be amended only in writing signed by both parties. A party's failure to enforce any provision does not waive that party's right to enforce it later. This agreement may be executed in counterparts, including by electronic signature, each of which is an original.

Signatures

By signing this agreement, each party acknowledges and agrees to the restrictive covenant obligations above. Employee confirms having read and understood each provision, including the Cover Terms.

Employer

Employer: [Legal name of the entity that employs the employee]

Signature:

Signatory Name: [Full name of the authorized signatory signing for the employer]

Title: [Title of the authorized signatory signing for the employer]

Date:

Employee

Signature:

Print Name: [Full legal name of the employee]

Date:

Adapted from OpenAgreements Wyoming and Florida restrictive covenant templates. Licensed under CC BY 4.0.