United States: Get Your Noncompete Agreements In Place...Or Regret It Later

Last Updated: April 24 2017
Article by Jude C. Bursavich

What efforts are you taking to protect your business? Noncompete Agreements should be in your business protection arsenal. Moreover, protecting your business and client base should take place now.

Efforts to maximize your chances of a Louisiana court enforcing your non-compete agreement should take place before an employee leaves and begins working for a competitor. Non-compete agreements prohibit an individual from competing in a designated geographical area for a specified duration of time, and in today's competitive marketplace, their use is increasing. This is certainly true in Louisiana. While the Louisiana legislature has made clear that non-compete agreements drafted correctly are enforceable, tension exists with Louisiana courts, which often look for ways to strike down these agreements, preventing individuals from earning a living in their chosen field.

How do you increase your chances of enforcing non-compete agreements in Louisiana? Your agreement should closely follow the language of the single statute in Louisiana controlling the enforceability of these agreements. Louisiana Revised Statutes 23:921 and its judicial interpretations strictly control the enforceability of non-compete agreements in Louisiana. La. R.S. 23:921(A)(1) begins with a general prohibition against any agreement whereby anyone is restrained from exercising a lawful profession, trade or business, unless one of the listed exceptions to the general prohibition contained therein is satisfied. It provides:

Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void.

The statute then lists eight exceptions to this general prohibition. These exceptions are generally based upon relationships, including the employer/employee relationship, the sale of the goodwill of a business, the dissolution of a partnership, the franchisor/franchisee relationship, the employer/computer employee relationship, the corporation/shareholder relationship, the partner/partnership relationship, and the limited liability company/member relationship.

The employer/employee relationship is the most commonly used exception to the general prohibition. 23:921(c). It provides in pertinent part:

Any person, including a corporation and individual shareholders of such corporation, who is employed as an agent, servant or employee, may agree with his employer to refrain from carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment...

To fall within the "safe haven" of all listed exceptions to the general prohibition, including the employer/employee relationship, most Louisiana courts require a valid non-compete agreement to contain an area of prohibition listed by parishes, municipalities or parts thereof, together with a term of no longer than two years from the date of termination of the relationship. These requirements are derived directly from La. R.S. 23:921.

While not expressly required by the statute, some Louisiana courts also require that a valid non-compete agreement narrowly and accurately define the business in which the individual is prohibited from competing.1 Other Louisiana courts deny the need for this additional non-statutory-based requirement.2 However, if the business is defined within the agreement, the definition must be narrow and accurate.3

When relying upon the employer/employee relationship to avoid the general prohibition, non-compete agreements should closely track the statute. Employees can be prohibited from "carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer." By doing so, the Louisiana Legislature's required language has been precisely followed. This makes it more difficult for a Louisiana court to strike down your agreement. Other exceptions to the general prohibition relied upon in your agreement should also closely follow the language of the exception relied upon.

Drafting non-compete agreements to comply with Louisiana law is critical to their enforceability. Using these agreements is smart business. Improving your chances of enforcing your non-compete agreements in Louisiana on the front end is the best practice.

Footnotes

1 Lafourche Speech & Language Services, Inc. v. Juckett, 94-1809 (La. App. 1st Cir. 3/3/95), 652 So.2d 679, writ denied, 95-0850 (La. App. 1st Cir. 5/12/95), 654 So.2d 351.

2 Baton Rouge Computer Sales, Inc. v. Miller-Conrad, 99-1200 (La. App. 1st Cir. 5/23/2000), 767 So.2d 763; Vartech Systems, Inc. v. Hayden, 05-2499 (La. App. 1st Cir. 12/20/06), 951 So.2d 247; Henderson Implement Company, Inc. v. Langley, 97-1197 (La. App. 3rd Cir. 2/4/98), 707 So.2d 482; Moores Pump and

3 Supply, Inc. v. Laneaux, 98-1049 (La. App. 3rd Cir. 2/3/99), 727 So.2d 695. Vartech Systems, Inc. v. Hayden, supra.

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