WHY ACT NOW? 2020 is here. In today’s competitive marketplace, non-compete agreements serve as 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 now for such eventuality is critical to the long-term success of your business. What’s stopping you from utilizing non-compete agreements?
WHAT'S THE LAW? 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. The statute begins with generally prohibiting any agreement where someone is restrained from exercising a lawful profession, trade, or business, unless one of the narrow exceptions to the general prohibition is satisfied. The list of exceptions to the general prohibition are, for the most part, based on relationships and include:
- employee/employer relationship
- sale of the goodwill of a business
- dissolution of a partnership
- franchisor/franchisee relationship
- employer/computer employee relationship
- corporation/shareholder relationship
- partnership/partner relationship (without consideration of any possible dissolution)
- limited liability company/member relationship
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 courts have narrowly construed the exceptions to the general prohibition.
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.
WHAT SHOULD YOU BE DOING? Preparing non-compete agreements that comply with Louisiana law is critical to their enforceability. Reviewing and updating your company's non-compete agreements annually is an additional good business practice. Doing this also serves as a constant reminder to your employees that they are subject to these agreements upon their termination of employment. It additionally allows consideration of any newly decided cases affecting the enforceability of these agreements. Using these agreements in 2020 is smart business.
WHAT'S STOPPING YOU?