An Employee/Employer Relationship Must Exist for An Enforceable Non-Compete Agreement in Louisiana
In two recently decided Louisiana cases, the court in each made clear that an employee must be employed at the time of execution for a non-compete agreement to be enforceable in Louisiana. In Rouses Enterprises, L.L.C. v. Clapp, the United States Fifth Circuit Court of Appeals upheld the district court’s ruling that the non-compete agreement at issue was unenforceable. A potential employee was asked to sign a non-compete agreement as an applicant. The court held that Louisiana law does not allow “an employer to enforce a non-compete agreement signed by a prospective employee.” In Setpoint Integrated Sols., Inc. v. Kitely, The court found that a non-compete agreement arguably signed after the employee’s termination as part of a severance package was unenforceable. These decisions are consistent with Louisiana law's strict interpretation of La. R.S. 23:921, the single statute in Louisiana governing these agreements.
La. R.S. 23:921 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 the 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.
As with the entirety of La. R.S. 23:921, these relationship requirements are strictly construed. Failing to satisfy the relationship requirement at the moment of execution, as demonstrated herein, will invalidate your agreement. Complying with all aspects of Louisiana’s controlling statute is critical in preparing valid and enforceable agreements in Louisiana.
Jude C. Bursavich is a partner in the Baton Rouge, Louisiana, office of Breazeale, Sachse & Wilson, L.L.P. He can be reached at (225) 381-8045 (O) and/or (225) 921-5552 (C). He has over 25 years of experience in drafting, enforcing, and defending non-compete and non-solicitation agreements throughout Louisiana.