Using Non-compete Agreements in 2016 to Protect Your Business
Happy New Year! With 2016 here, what efforts will you take to protect your business? Are noncompete agreements in your arsenal? If not, why? Why refuse to take advantage of the protection Louisiana law provides?
Are noncompete agreements enforceable in Louisiana? I am often asked this question. My answer is always the same: Yes, if drafted correctly. The validity of noncompete 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 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 noncompete 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 recently added by the Louisiana Legislature 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, Louisiana jurisprudence has strictly construed these exceptions to the general prohibition. To fall within these exceptions, most Louisiana courts have required a valid noncompete agreement 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 noncompete agreement define the business accurately 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.
While the Louisiana Legislature continues to broaden the use of noncompete agreements in Louisiana by creating more exceptions to the general prohibition, many courts continued to dislike these agreements. This is certainly understandable, considering that noncompete agreements deny individuals the right to earn a living in the chosen field of employment. Knowing these facts, it is imperative that your noncompete agreements be drafted in compliance with all requirements of 23:921 to maximize the chances of having your agreements deemed enforceable.