Non-Compete Agreements in Louisiana

On June 24, 2007 by

Read this Blog Post to learn:

  • Louisiana’s approach to Non-Compete Agreements
  • Hurdles facing Non-Compete Agreements
  • Keys to Drafting an Enforceable Non-Compete Agreement
  • The Perils of Small Mistakes in a Non-Compete Agreement
  • Whether a Non-Compete Agreement is Right for your Company

Generally, Non-Enforceable
It is difficult to overstate the degree of scrutiny judges all across the country provide to non-competition and non-solicitation agreements. Because these agreements are definitively anti-competitive and contrary to the public policy of encouraging free enterprise, they are very strictly analyzed and very often unenforceable.

Louisiana in particular approaches non-compete agreements with great caution.

The Louisiana State Legislature has made Louisiana’s position on these types of agreements Statute very clear by enacting Louisiana Revised Statute 23:921, and particularly in its drafting of the statute’s opening provision: “Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business or any kind, except as provided in this Section, shall be null and void.”

23:921’s very first line, in other words, sets the standard that all non-compete agreements are null and void unless they meet certain requirements. Louisiana courts have taken the cue from 23:921 and have also stressed that these agreements must climb uphill before achieving enforceability.

In Aon Risk Services of Louisiana, Inc. v. Ryan (2002), the Louisiana 4th Circuit Court of Appeals stated, “[s]tatutory exceptions to the public policy against anticompetition agreements are tightly drawn and should be narrowly construed in keeping with underlying policy of prohibiting restraint of free competition.”

Making It Work
Despite the clear legal skepticism against non-compete agreements, they are very popular all across the country, and its common to find a non-compete agreement in corporate , employment and independent contractor contracts.

As indicated by their presence throughout the country, non-compete agreements obviously have a value to organizations. A new company in a new market could suffer greatly if a new employee swoops in, takes a few weeks to learn the ropes and then sets up a competing business in the same area.

If your business could benefit from a non-compete or similar agreement, it’s imperative to understand the Louisiana requirements before putting pen to the paper. A non-compete agreement must be written correctly to carry any weight in a Louisiana court, and the margin for error is slight.

LA R.S. 23:921, after its general proclamation that non-compete agreements are in general null and void, allows such agreements in the following circumstances:

  • When a business is purchased, the seller may agree to refrain from engaging in a business similar to the business being sold within specified parishes, for a period not to exceed 2 years.
  • An employee may agree with his employer to refrain from engaging in a similar business to that of the employer within specified parishes for a period not to exceed 2 years from termination of employment.
  • An independent contractor, whose work is performed pursuant to a written contract, may agree to refrain from engaging in business similar to the business with whom the independent contractor has contracted, on same basis as if the independent contractor were an employee, for a period not to exceed 2 years from date of last work performed under the written contract.

The Louisiana 1st Circuit Court of Appeals summed up the requirements as simply as possible when in Cellular One, Inc. v. Boyd (1995), it stated: “[t]o be valid, noncompetition agreement may limit competition only in business similar to that employer, in specified geographic area, and for up to two years from termination of employment.”

However, this simple statement should not mislead one into thinking that a non-compete agreement technically meeting these three requirements will be valid. In fact, valid non-compete agreement must also (1) properly limit the type of business being restricted; (2) must identify and define a geographic area and ensure it is relevant and proper; (3) must properly and fairly restrict the non-competition time.

Additionally, there are other hidden considerations. For example, Louisiana courts have consistently held that a non-compete agreement will be unenforceable in absence of any specialized training or marketing tailored to the promotion of individual employees – the rationale being that there is no need to restrict competition if the employee or independent contractor doesn’t gain a competitive edge. Groome Enterprises, Inc. v. Network Paging Corporation (1993).

Conclusion

Non-Compete and similar agreements present legal hurdles, and are rarely enforceable by accident. No word or phrase in a non-competition agreement should be used without a thorough analysis of its import. Ordinarily, contracts are written with broad language to extent to hypothetical or broad circumstances, but in the case of non-compete agreements, the opposite is required.

It might be prudent to state the following: non-compete agreements are available to protect the employer’s (or business’) vital interest only. It’s important to not only express this in your non-competition agreement, but to also write in such a way as to exclude the possibility of other interpretations of the contract.

The Wolfe Law Offices is experienced in drafting non-competition and non-solicitation agreements, and would be happy to talk with your organization about its needs and whether such an agreement is right for business.

On Jun 24, 2007

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  • greg

    Can a non-compete agreement be enforced against an attorney who retires or leaves a firm?