Are non-competition employment agreements enforceable in Louisiana?
Business owners understand that their businesses success was not handed to them. Hard work, creativity and good decision-making are some of the reasons their business is successful. In addition, any business that is growing understands the importance of hiring in order to support the business growth. When businesses hire employee for growth, they do not intend to consequentially create a potential competitor or for an employee to use the business’s proprietary information at a competitor business. This is the basis for Louisiana’s competition law.
While non-competition agreements are enforceable, they must be done so with precision. This is because Louisiana courts generally do not favor non-competition agreements. There are many reasons for them not being favored but Louisiana legislators believe it may not be healthy for a state to keep its people from working. Non-competition agreement in Louisiana are governed by Louisiana Revised Statutes. The Louisiana law for non-compete agreements provides that every agreement that restrains someone from engaging any profession is null and void unless the prohibition of competition meets one of the very specific exceptions outlined in La. R.S. 23:921.
In today’s business environment, top employees and executives, physicians, engineers and other high-level professionals are often subject of non-compete disagreements. Businesses favor non-competes because they do not want to withhold certain information from its employee. Instead, in exchange for the release of proprietary information, they expect it will not be used to create competition to their business.
Louisiana Non-Compete Law
In order for a non-compete agreement to be enforceable, it can only restrict an employee “from carrying on or engaging in a business similar to that of the employer” and/or “from soliciting customers of the employer.” Even then, only if two conditions are met. First, there must be an expressly identified territory consisting of a list of parishes or municipalities in which the employer is operating. Second, the restriction can only be effective for a period of two years from the termination of employment, assuming that business is still operating.
Each and every requirement listed above shall be addressed in a non-compete agreement in order to be potentially enforceable.
Developments & Trends
In 2017, Louisiana courts issued consequential rulings concerning Louisiana non-compete agreements. In Paradigm Health System, LLC v. Faust, the First Circuit held a non-compete agreement, which seemingly complied with the rules, invalid. In their ruling, they Court interpreted the non-compete law to require a clause that clearly identifies the specific nature of the employer’s business. For example, if an anesthesiologist is prohibited from practicing in Jefferson or Orleans parish, can he practice interventional pain medicine in those parishes?
In another case, the Fifth Circuit did not enforce a non-compete agreement because it determined the clause to be impermissibly broad. The clause contained language that restricted a former law partner from engaging in ANY business whose activities competed in ANY way with his previous employer. This was ruled to be not enforceable.
Tips to Drafting an Enforceable Non-Compete Agreement
As stated previously, Louisiana courts strongly disfavor the enforcement of non-compete agreements. In other words, your non-compete agreement will most likely be presumed to be null and void, unless you clearly prove it is enforceable.
Below is a list of items that your Non-Compete Agreement shall contain:
Should you have any questions or you would like to discuss this issue in further detail, please do not hesitate to contact us.