Will 2022 Be the Year You Protect Your Business?
Non-compete agreements in Louisiana are enforceable if drafted correctly. These agreements prohibit an employee or independent contractor from learning your business and taking that information to another company to compete with you. As 2022 quickly approaches, will this be the year that you protect your business by utilizing non-compete agreements? If so, carefully drafting them is critical to their enforcement.
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 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.
Because these agreements are a 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. However, if the business is defined within the agreement, the definition should be narrow and accurate.
As demonstrated herein, non-compete agreements in Louisiana can be enforceable. Complying with Louisiana’s controlling statute is the most important aspect of preparing valid and enforceable agreements in Louisiana. Preparing non-compete agreements that comply with Louisiana law is critical to both their enforceability and protection of your business in 2022.
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.