Non-Compete Agreements Versus Non-Solicitation Agreements: The Better Choice For Louisiana Businesses

Louisiana law allows employers to enter into both non-compete and non-solicitation agreements with employees. When determining which to use to protect your business, there are certain enforcement distinctions that every employer should consider.

Non-solicitation and non-compete agreements in Louisiana are both subject to La. R.S. 23:921. That provision allows an employer to enter into a non-compete agreement, a non-solicitation agreement, or both with employees. A non-compete agreement prohibits employees from working in competition with their former employer within a specified geographical area for up to two years. A non-solicitation agreement allows former employees to compete with their former employer, but prohibits the solicitation of their former employer’s customers for up to two years. As demonstrated herein, a violation of a properly drafted non-compete agreement is much easier to enforce than a violation of a properly drafted non-solicitation agreement. To understand why, you must understand La. R.S. 23:921 and its narrow interpretations.

The validity of non-compete and non-solicitation agreements in Louisiana is controlled by a single statutory provision and its judicial interpretations. La. R.S. 23:921, Louisiana's controlling statute, begins with a general prohibition against any agreement whereby anyone is restrained from exercising a lawful profession, trade, or business, unless one of the narrow exceptions to the general prohibition contained therein has been satisfied. It provides:

Every contract or agreement, or provision thereof, above 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.

This opening paragraph of La. R.S. 23:921 reflects Louisiana's strong public policy against these agreements. The exceptions to the general prohibition, for the most part, are based upon relationships. They include the employer/employee relationship, the sale of the goodwill of the business, the dissolution of a partnership, the Franchisor/Franchisee relationship and Employer/Computer Employee relationship. Additional exceptions added by the Louisiana Legislature in recent years are again based upon relationships. They include the Corporation/Shareholder relationship, the Partner/Partnership relationship, without consideration of any possible dissolution, and the Limited Liability Company/Member relationship.

Because these agreements are in derogation of the common right to earn a living, Louisiana jurisprudence has strictly construed these exceptions to the general prohibition. To fall within these exceptions, most Louisiana courts have required both non-compete and non-solicitation agreements to list the area of prohibition by parishes, municipalities, or parts thereof, together with a term of no longer than two (2) years from the date of termination of the relationship.

While not specifically contained within the statute, various Louisiana courts have also required that a valid non-compete agreement accurately define the business in which the individual is prohibited from competing. Other Louisiana courts deny the need for this additional non-statutory-based requirement. If the business is defined within the agreement, however, the definition should be narrow and accurate.

Non-compete agreements, while still disfavored, are easier to enforce. The Employer/Employee relationship exception to the general prohibition allows an employee to agree “to refrain from carrying on or engaging in a business similar to that of employer and/or from soliciting customers of the employer.”[1] For purposes of a non-compete agreement, “a person who becomes employed by a competing business, regardless of whether or not that person is an owner or equity interest holder of that competing business, may be deemed to be carrying on or engaging in a business similar” to that of the employer.[2] Thus, whether an ex-employee starts his own competing business or goes to work for an established competitor, a non-compete agreement that otherwise meets the requirements of La. R.S. 23:921 is enforceable.

A non-solicitation agreement, however, is harder to enforce. La. R.S. 23:921 only allows the prohibition of “soliciting customers” of the employer. While many agreements attempt to broaden the prohibition by prohibiting an employee from “doing business with customers” or “accepting business from customers,” such language is beyond what the statute allows. Moreover, such agreements must be strictly construed, limiting the prohibition to “soliciting customers.”[3] How do you demonstrate solicitation for purposes of proving violation of a non-solicitation agreement? Black’s Law Dictionary defines solicitation as:

Asking; enticing; urgent request. Any action which the relation of the parties justifies in construing into a serious request.

What if the customer initially approaches the ex-employee? What if the customer does the solicitation? Under a narrow interpretation of La. R.S. 23:921C, which Louisiana requires, all an employee can be prohibited from doing is “soliciting customers.”

Enforcing a non-compete agreement that complies with all requirements of La. R.S. 23:921 simply requires a demonstration that an ex-employee is now working for a competitor. Enforcing a non-solicitation agreement that complies with all requirements of La. R.S. 23:921, however, requires a demonstration that an ex-employee solicited your customers -- a much more difficult burden. Moreover, most businesses are hesitant to involve customers in legal disputes to determine who solicited whom. Thus, non-compete agreements rather than non-solicitation agreements have a much easier burden of proof to demonstrate their violation and do not require customer involvement. Non-compete agreements, therefore, appear a better choice for Louisiana businesses. At the very least, non-compete agreements should be used in concert with non-solicitation agreements.