Are perpetual NDAs for software developers enforceable in South Dakota?

Are perpetual NDAs for software developers enforceable in South Dakota?

In South Dakota, perpetual non-disclosure agreements (NDAs) are generally unenforceable. South Dakota courts require restrictive covenants to be reasonable in duration and scope. An indefinite restriction on information that naturally loses its competitive value over time is typically viewed as an unreasonable restraint of trade and an overreach of employer authority.

Key takeaway: If an NDA lacks a sunset clause or a specific duration, it is highly vulnerable to being struck down by a South Dakota court as an unreasonable restraint on an employee's ability to practice their profession.

The Legal Standard for Reasonableness

South Dakota courts evaluate the enforceability of restrictive covenants based on the "rule of reason." For an NDA to be valid, it must meet three primary criteria:

• Legitimate Business Interest: The employer must prove the information being protected is a genuine trade secret or proprietary data, not merely general industry knowledge.
• Reasonable Duration: The restriction must be limited to a timeframe that corresponds to the actual shelf-life of the information.
• Reasonable Scope: The restriction must be narrowly tailored to the specific information the employee accessed, rather than a blanket prohibition on all work in the industry.

Action Item: Review your current agreements to ensure they define "Confidential Information" narrowly. If the definition includes everything you learned on the job, it is likely overbroad.

Trade Secrets vs. General Knowledge

Software developers often face the challenge of distinguishing between proprietary code and general programming skills. Under the South Dakota Uniform Trade Secrets Act (SDCL 37-29), employers can protect information that derives independent economic value from not being generally known. However, this does not grant a perpetual monopoly over an employee's career.

Action Item: Ensure your NDA explicitly excludes "general knowledge, skills, and experience" from the definition of confidential information to improve its chances of being upheld.

Why Perpetual NDAs Fail in Court

Courts in South Dakota are increasingly skeptical of "perpetual" clauses because technology moves faster than the law. A piece of code that is a trade secret today may be obsolete in 18 months. A perpetual NDA attempts to lock that information away forever, which serves no legitimate business purpose and unfairly restricts the developer's mobility.

The Risk of Overbreadth

When an NDA is drafted too broadly, South Dakota courts may choose to either "blue-pencil" (rewrite) the contract or strike it down entirely. Relying on a court to rewrite your contract is a dangerous legal strategy that often results in the loss of all protections.

1. Audit: Identify all NDAs that lack a specific expiration date.
2. Categorize: Determine which information actually requires long-term protection versus short-term protection.
3. Amend: Replace perpetual terms with specific durations, such as 12, 24, or 36 months, depending on the industry standard for the specific technology.

Key takeaway: A well-drafted NDA should include a "sunset provision" that automatically terminates the confidentiality obligation once the information becomes public or loses its competitive advantage.

Best Practices for Drafting NDAs

To ensure your agreements are enforceable, focus on precision rather than breadth. A restrictive covenant that is too broad is often worse than having no agreement at all, as it may be deemed void against public policy.

• Define the "What": Clearly list the types of information covered (e.g., specific algorithms, internal API documentation).
• Define the "When": Set a clear expiration date for the obligation.
• Define the "Who": Limit the scope to the specific project or department the developer worked on.

Action Item: If you are a developer, negotiate for a "carve-out" clause that explicitly permits you to use your general knowledge and skills in future employment, provided you do not disclose specific trade secrets.

TermScore provides an AI-powered platform that automatically analyzes your contracts to identify overbroad, perpetual, or unenforceable clauses. By scanning your agreements against South Dakota's specific legal standards, TermScore helps you mitigate risk and ensure your intellectual property protections are both robust and legally sound.