Fifth Circuit Provides New Guidance on Louisiana Non-Compete Agreements
In a per curiam decision released on March 8, 2022, the U.S. Court of Appeals for the Fifth Circuit in New Orleans found that a non-compete agreement was not enforceable because the employee signed it before he was officially hired. Though not published, the decision affirms the district court's logic and is persuasive in interpreting Louisiana law on non-compete agreements.
The case involved an executive employee for Rouses Enterprises who signed a non-compete agreement during the hiring process, but before he was officially employed. His interview was in December 2017, the agreement was signed shortly after, and he was not offered the position until nearly a month later, in January 2018. Following the end of his employment with Rouses in 2020, the employee began working for a competing entity in Texas. Rouses then sued for damages and injunctive relief.
Ultimately, the Fifth Circuit applied statutory interpretation principles and precedent to find that the non-compete agreement was not enforceable. Because Louisiana law disfavors restrictive covenants generally, any variation from the statutory language is strictly construed. The court relied on an earlier state court case finding that a non-compete agreement signed after an employee was terminated was not enforceable because the agreement must be between an “employer” and an “employee.” By that logic, the court held that the employment relationship must be official before signing a non-compete agreement.
So what does this mean for employers? Put simply, Louisiana employers must strictly follow the terms of the statute in implementing non-compete agreements. Restrictive covenants should not be signed before the employment relationship begins, such as during the interview process, nor after the relationship ends. Otherwise, the agreement will likely be found unenforceable. As a best practice, non-compete agreements should be made a part of the onboarding process after a hiring decision has been made, accepted, and the employee has started the position.
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