Updating Your Non-Compete Agreements Annually is a Smart Business Practice
In today’s competitive marketplace, non-compete agreements can be a valuable tool. Businesses in Louisiana often use them to protect themselves from employees learning the business and leaving to compete with their ex-employer. Preparing today for such eventuality is critical to the long-term success of any business.
The use of these agreements, however, is not enough. The most forward thinking companies update their non-compete agreements on an annual basis. Doing so reminds employees that they are subject to a non-compete agreement if they leave their respective employer. Moreover, updating your non-compete agreements annually allows you to make revisions to your agreement considering new cases that have been decided affecting the enforceability of non-compete agreements in Louisiana. Considering Louisiana’s restrictive policy on the enforceability of non-compete agreements, as discussed below, it is important that these agreements be drafted in compliance with Louisiana law, including regular consideration of the most recent Louisiana jurisprudence affecting the validity of these agreements.
The validity of non-compete agreements in Louisiana is strictly controlled by a single statutory provision (La. R.S. 23:921) and its judicial interpretations. La. R.S. 23:921(A)(1) begins with the 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 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.
Louisiana has long had a strong public policy against non-compete agreements. Because these agreements are in derogation of the common right -- the right to work in your chosen field -- Louisiana jurisprudence has narrowly construed the exceptions to the general prohibition listed in La. R.S. 23:921. These exceptions, for the most part, are based upon relationships. The list of exceptions include the employee/employer 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 partnership/partner relationship (without consideration of any possible dissolution), and the limited liability company/member relationship.
Once it is demonstrated that a particular non-compete agreement falls within one of the listed exceptions, most Louisiana courts require a valid non-compete agreement to contain an area of prohibition described by parishes, municipalities, or parts thereof, together with a term of no longer than two years from date of termination of the relationship. These requirements are derived from statutory language.
While not contained within the statute, some Louisiana courts also require a valid non-compete agreement to define narrowly and accurately 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 must be narrow and accurate.
As demonstrated herein, drafting non-compete agreements that comply with Louisiana law is critical to their enforceability. Updating your company’s non-compete agreements annually is good business. Doing so serves as a constant reminder to your employees that they are subject to these agreements upon departure. It additionally allows consideration of any newly decided cases affecting the enforceability of these agreements. Using these agreements is smart business. Updating your company’s non-compete agreements annually is the smartest business!