Daniel SterlingA software engineer in Sioux Falls and a software engineer in Fargo, North Dakota, can sign identically worded non-compete agreements — and face completely different legal outcomes. The Sioux Falls engineer may be bound by the agreement if its scope and duration are reasonable. The Fargo engineer is almost certainly free to work wherever they like, because North Dakota voids most non-competes by statute. Geography is the deciding factor.
South Dakota sits in the moderate middle: non-compete agreements are permitted but scrutinized. The state applies a reasonableness standard — no bright-line durational limits, no categorical bans — meaning the outcome of any particular agreement depends on how a South Dakota court evaluates its specific terms. For employees considering a job change and for employers drafting hiring contracts, the comparison between South Dakota and its neighbors is the analysis that matters most.
South Dakota's Non-Compete Framework: SDCL § 53-9-11 and the Reasonableness Test
South Dakota's approach to non-competes is anchored in SDCL Chapter 53-9, which renders contracts in restraint of trade void as a general rule — but carves out exceptions for specific categories. Employment non-competition agreements fall under this framework, and South Dakota courts have consistently held that they are enforceable when three conditions are met:
Reasonable scope of activity — the restricted activities must be sufficiently specific and not broader than necessary to protect the employer's legitimate interest. A non-compete barring an employee from "any business related to financial services" is likely too broad for a loan officer. One barring work at "competing commercial banks in the Sioux Falls metropolitan area" is more defensible.
Reasonable geographic territory — the geographic restriction must correspond to the area in which the employer actually operates and has legitimate business relationships. A Rapid City insurance agency's non-compete restricting competition "in Pennington County" is more likely to survive than one covering "the entire United States."
Reasonable duration — South Dakota courts have enforced non-competes of 6 months to 2 years in most employment contexts, and looked skeptically at restrictions exceeding 2 years without compelling justification.
Consideration requirement: A non-compete signed by a new hire as part of the initial offer of employment is supported by the consideration of the job itself. A non-compete imposed on an existing employee mid-employment requires additional consideration — a promotion, a raise, a cash payment, or access to new trade secret information. Mere continuation of employment is generally not sufficient consideration in South Dakota courts.
South Dakota vs. Neighboring States: The Regional Comparison
No two neighboring states in the region treat non-competes identically. For a multi-state employer — or an employee considering relocation — the differences are material:
| State | Non-Compete Status | Usual Duration Upheld | Key Statute or Basis |
|---|---|---|---|
| South Dakota | Permitted if reasonable | 1-2 years | SDCL § 53-9-11 (reasonableness test) |
| North Dakota | Virtually prohibited | N/A | NDCC § 9-08-06 (void by statute) |
| Minnesota | Banned for employees (effective 2023) | N/A | Minn. Stat. § 181.988 |
| Nebraska | Permitted if reasonable | Up to 2 years | Blue-pencil doctrine applied |
| Wyoming | Permitted if reasonable | 1-2 years | Common law reasonableness |
| Iowa | Permitted if reasonable | 2 years | Common law, blue-pencil applied |
| Montana | Permitted (limited for most employees) | 1 year | MCA § 28-2-703 |
Source: State employment law statutes and case law, 2026
The starkest contrast is with North Dakota (NDCC § 9-08-06), which renders most employee non-competes void as a matter of statute. A non-compete enforceable in Sioux Falls is worthless if the employee moves across the border to Bismarck. Multi-state employers should be aware that South Dakota choice-of-law clauses may not be enforceable to bind North Dakota-based employees to South Dakota's less restrictive regime.
Minnesota's 2023 ban is equally significant for employers with offices in both Minneapolis and Sioux Falls. Post-2023, a non-compete signed by a Minnesota employee is void under state law — regardless of which state's law the contract designates. South Dakota employers with remote workers in Minnesota cannot rely on South Dakota law to enforce a non-compete against those workers.
The Blue-Pencil Question: Will South Dakota Courts Rewrite Your Agreement?
The "blue-pencil doctrine" refers to a court's power to modify — rather than void — an overbroad non-compete. Under a full blue-pencil approach, a court finding that a 3-year, nationwide non-compete is excessive might rewrite it as a 1-year, statewide restriction and enforce the modified version.
South Dakota courts have applied this doctrine inconsistently. Some decisions have narrowed overbroad non-competes rather than voiding them entirely. Others have rejected the doctrine and struck down agreements as written when they found the terms unreasonable. This inconsistency creates practical risk for both sides:
- For employers: Relying on blue-penciling to cure an overbroad contract is strategically unreliable. A court may void it outright. Narrow drafting from the start is the only safe approach.
- For employees: An overbroad non-compete is not automatically unenforceable in South Dakota. A court might enforce a narrowed version. Seeking legal advice before signing — and potentially negotiating terms — is more protective than hoping the agreement will be struck down later.
"In South Dakota, the doctrine of blue-penciling is a tool courts use with discretion, not consistency," notes a Sioux Falls employment attorney specializing in restrictive covenant disputes. "Employers who draft aggressively, hoping a court will save them, are taking a bet they may lose. A two-year, statewide non-compete for an entry-level sales role will likely be rejected — not rewritten."
Verdict: Is South Dakota Non-Compete Law Favorable to Employers or Employees?
South Dakota occupies a moderate, employer-leaning position relative to the region:
- More favorable to employers than North Dakota or Minnesota, which prohibit most non-competes
- Comparable to Wyoming and Iowa, which apply similar reasonableness tests
- Less favorable to employers than Texas and Florida, where courts have historically enforced aggressive non-competes with minimal scrutiny
For employees, South Dakota's "reasonableness" standard provides meaningful protection against overreaching agreements — but only if you push back. An employee who signs a 3-year, 50-state non-compete without negotiating has fewer practical protections than one who negotiates the restriction down before signing, even if the original agreement might eventually be challenged in court.
For employers, the lesson is that tailoring matters enormously. Protecting trade secrets and customer relationships with a 1-year, regional restriction is far more enforceable than a sweeping restriction that overreaches. The additional legal risk of broad drafting is rarely worth the theoretical benefit.
For a comparison of how Florida — a historically non-compete-friendly state — handles enforcement, see Florida Non-Compete Agreements: §542.335 Enforcement Guide. For the New Jersey approach, see New Jersey Non-Compete Agreements.
Legal disclaimer: This article provides general comparative information about non-compete law and does not constitute legal advice. Non-compete enforceability is fact-specific and jurisdiction-dependent. Consult a licensed South Dakota employment attorney before signing or enforcing a non-compete agreement.
Practical Steps: If You Are Bound by a South Dakota Non-Compete
For employees considering a job change:
- Read the restriction carefully. What activities are prohibited — your entire profession, or specific roles at named competitors? Precision in the restriction language matters more than the headline duration.
- Check the consideration. When did you sign? If you signed mid-employment with no raise, promotion, or new benefit offered at the same time, the agreement may lack valid consideration in South Dakota.
- Map the geography. Does your prospective new employer operate in the restricted territory? A restriction covering Rapid City may not bar you from taking a job in Sioux Falls if the employer's actual market was only in the western part of the state.
- Request a legal review before you accept a new offer. An employment attorney can assess enforceability in an hour. The 50-00 consultation fee is a fraction of the cost of an injunction proceeding.
- Negotiate a release. Many South Dakota employers will agree to release a departing employee from a non-compete if they pose no real competitive threat. A written release is worth more than a legal opinion on enforceability.
For employers drafting non-competes:
- Restrict only the specific roles and territories where your legitimate business interest lies
- Define competition precisely — by product line, service type, or named competitors — rather than by broad industry category
- Vary the restriction by role: a VP of Sales may warrant 18 months and a 200-mile radius; a customer service representative may warrant no restriction at all
- Include a severability clause that preserves other contract terms if the non-compete is modified or voided
