Why the legal presumption that customer goodwill automatically belongs to employers is fundamentally flawed
Here’s a scenario that should trouble anyone who cares about economic freedom:
A real estate agent working as an independent contractor receives a lead through her brokerage’s Zillow account. She nurtures that lead, shows properties, negotiates the deal, and closes the transaction. Throughout the entire process, the client never meets anyone else from the brokerage. They have zero relationship with the brokerage entity itself.
Six months later, the client is ready to buy and sell again. Who do they call? The agent, of course—because of her skill, service, and the relationship she built.
Now here’s the legal fiction: South Carolina courts, like most jurisdictions, would likely say that goodwill belongs to the brokerage. The brokerage could enforce a nonsolicitation agreement preventing the agent from working with “their” client if she leaves.d
But whose goodwill is it really?
The Master-Servant Hangover
The default rule—that customer goodwill belongs to the employer—is not natural law. It’s a judicial construct that courts adopted and have perpetuated largely without examining its underlying assumptions.
This rule sits alongside other employer-favorable doctrines: employment at-will, no implied covenant of good faith in at-will contracts (in most states), and the notion that employers can restrict your ability to earn a living even after employment ends. These rules systematically shift power toward employers and reveals the remnants of Master-Servant jurisprudence from which modern employment law is derived.
In 1961, the South Carolina Supreme Court declared that “the most important single asset of most businesses is their stock of customers” and that “protection of this asset against appropriation by an employee is recognized as a legitimate interest of the employer.” Standard Register Co. v. Kerrigan, 238 S.C. 54, 66, 119 S.E.2d 533, 539 (1961). Notice the language: employees who work with customers they served are “appropriating” or “pirating” the employer’s asset.
The Attempt at Balance—And Why It Falls Short
Courts have recognized the tension. In 1980, the South Carolina Supreme Court acknowledged:
“While recognizing the legitimate interest of a business in protecting its clientele and goodwill, we are equally concerned with the right of a person to use his talents to earn a livelihood.”
Sermons v. Caine & Estes Insurance Agency, Inc., 275 S.C. 506, 509, 273 S.E.2d 338, 339 (1980). This balancing language has been repeated in South Carolina cases for over forty years. See Baugh v. Columbia Heart Clinic, P.A., 402 S.C. 1, 12, 738 S.E.2d 480, 486 (Ct. App. 2013); Fay v. Total Quality Logistics, LLC, 419 S.C. 622, 629, 799 S.E.2d 318, 322-23 (Ct. App. 2017).
But here’s the problem: this “balance” still assumes the goodwill belongs to the employer. It merely asks whether the restriction is too harsh in preventing the employee from using his “talents to earn a livelihood.”
This framework fundamentally misses the point.
The Questions Courts Should Be Asking
The Sermons balancing test fails to recognize that an employee’s talents are themselves a source of goodwill. When a client returns to work with a specific agent, accountant, or salesperson, that loyalty often flows from the individual’s skill, judgment, and relationship-building—not from the employer’s brand or systems.
And there’s a deeper problem with the language itself: “earn a livelihood” versus “pursue your greatest worth.” One suggests leaving the employee just enough to survive—to hit a minimum. The other recognizes the freedom to thrive—to reach for the maximum. Courts speak of protecting an employee’s ability to earn a living, but what about the right to earn the best living their talents can command?
In my practice representing key employees and entrepreneurs, I see talented professionals trapped by restrictive covenants that prevent them from working with clients who want to hire them, customers who seek them out, and opportunities they created through their own efforts. These aren’t cases about protecting legitimate business interests—they’re about one party claiming ownership of goodwill they didn’t create.
The fundamental question courts rarely ask is this: Where did the goodwill actually come from?
Was it brought to the employment relationship by the employee? Was it created primarily through the employee’s extraordinary personal efforts? Did the customer have any real relationship with the company, or only with the individual? When a client chooses to follow a professional, does that choice reflect an “appropriation” of the employer’s asset, or does it reflect the client’s independent judgment about who provided value?
These questions matter because the answers determine whether the employer has any legitimate interest to protect—or whether they’re simply trying to appropriate something that never belonged to them in the first place.
