What Law Applies to Your Louisiana Non-Compete Agreement?
The validity of non-compete agreements in Louisiana is controlled by a single statute. 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 non-compete 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.
Because of Louisiana’s restrictive law on non-compete agreements, employers often attempt, with a choice of law provision, to apply another state’s law to govern their Louisiana non-compete agreements. Will that work? Will Louisiana law allow an employer to utilize another state’s law to govern its non-compete agreement? No --- for the reasons explained herein.
Choice of law provisions in an employment agreement containing non-compete provisions are unenforceable, unless the employee knowingly and voluntarily agrees to and ratifies the choice of law provision after the occurrence of the incident which is the subject of a civil action. In other words, once an issue arises under the non-compete agreement, the employee has to ratify the employer’s choice of law again. If the employee refuses to do so, the choice of law provision is unenforceable, with Louisiana law instead applying to the agreement.
La. R.S. 23:921 A(2) provides:
The provisions of every employment contract or agreement, or provisions thereof, by which any foreign or domestic employer or any other person or entity includes a choice of forum clause or choice of law clause in an employee’s contract of employment or collective bargaining agreement, or attempts to enforce either a choice of forum clause or choice of law clause in any civil or administrative action involving an employee, shall be null and void except where the choice of forum clause or choice of law clause is expressly, knowingly and voluntarily agreed to and ratified by the employee after the occurrence of the incident which is the subject of the civil or administrative action.
Attempting to use another state’s law for Louisiana non-compete agreements with employees is not a good strategy. The better approach is to meet all requirements of La. R.S. 23:921, Louisiana’s single statute governing the enforceability and validity of non-compete agreements in Louisiana.