Originally published by Guest Blogger.
Multi-state non-compete agreements are commonplace. Enforcing these agreements is generally not a problem, as most states use a reasonableness test for determining their enforceability. Texas law requires an evaluation of reasonableness as to time, geographical area, and activity being restrained, not unlike most other states (Tex. Bus. and Com. Code § 15.50). If the reasonableness test is met, these agreements can be enforceable. Not so in Louisiana.
Companies and individuals outside of Louisiana seeking to do business there are often surprised by Louisiana’s non-compete law. Louisiana does not use a reasonableness test to determine the validity of non-compete agreements. To the contrary, contracts that restrain someone’s right to work are presumed to be invalid in Louisiana. Moreover, Louisiana law prevents efforts to avoid the applicability of Louisiana’s strict law in contractually providing for the applicability of another state’s law in a non-compete agreement involving an employer/employee relationship. In short, in seeking to enforce a non-compete agreement in Louisiana, Louisiana law cannot be avoided.
The validity of non-compete agreements in Louisiana is strictly controlled by a single statutory provision—Louisiana Revised Statutes § 23:921—and its judicial interpretation. Louisiana Revised Statutes § 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 Louisiana Revised Statutes § 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 directly 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.
In further protecting the right of employees to work in their chosen field of employment, Louisiana Revised Statutes § 23:921 prohibits a contract of employment from designating by contractual provision the applicability of another state’s law unless the employee re-confirms such choice of law after the occurrence of the incident which is the subject of the dispute. Thus, once an employee is terminated and begins competing with his or her ex-employer, the applicability of the provision in the non-compete agreement selecting another state’s law is only valid if the employee agrees to it again, once his or her ex-employer complains about the alleged violation of the non-compete agreement.
Louisiana Revised Statutes § 23:921(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.
As demonstrated herein, drafting multi-state non-compete agreements that include Louisiana are problematic. An enforceable non-compete agreement in Louisiana requires much more than reasonableness. All requirements of Louisiana Revised Statutes § 23:921 must be met for a valid non-compete agreement in Louisiana. One approach is to exclude Louisiana from your multi-state non-compete agreements, with a separate agreement for Louisiana, compliant with Louisiana law. Doing so will protect your client’s business in today’s competitive marketplace.
Jude C. Bursavich is a partner in the Baton Rouge, Louisiana, office of Breazeale, Sachse & Wilson. He practices in the area of complex business and commercial litigation and has concentrated on business protection issues for over 25 years. Bursavich has extensive experience in drafting and litigating non-compete agreements throughout Louisiana. He represents both individuals and local and national companies in business matters.
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