Determining the validity of non-compete agreements under Louisiana law differs from most other states. The following are questions commonly asked about non-compete agreements under Louisiana law.
Are non-compete agreements enforceable in Louisiana?
Yes, if drafted correctly. The validity and enforceability of non-compete agreements in Louisiana is controlled by a single statute, La. R.S. 23:921. Failure to strictly adhere to its requirements invalidates a Louisiana non-compete agreement.
Are there limits on the duration of non-compete agreements in Louisiana?
Yes. Non-compete agreements in Louisiana can’t be longer than two years. They can be shorter, but cannot be any longer than two years.
Does reasonableness play any role in determining the validity of non-compete agreements in Louisiana?
No. Louisiana law differs with most other states on this issue. The statutory requirements of La. R.S. 23:921 include no reasonableness analysis.
What are the requirements of La. R.S. 23:921?
The statute in the first sentence makes clear that non-compete agreements in Louisiana are unenforceable, unless the agreement fits into one of the exceptions to the general prohibition listed therein. The opening sentence provides:
“[E]very 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.” (Emphasis added.)
What are the exceptions to the general prohibition on non-compete agreements in La. R.S. 23:921?
There are eight listed exceptions to the general prohibition. Each is relationship based, meaning that a valid non-compete agreement under Louisiana law must be between parties listed in the eight exceptions. The eight relationship exceptions are the seller/buyer of goodwill of the business relationship; the employer/employee relationship; the partnership/partner relationship involving dissolution; the franchisor/franchisee relationship; the computer employer/employee relationship; the corporation/shareholder relationship; the partnership/partner relationship irregardless of dissolution; and the limited liability company/member relationship. In other words, an agreement between an employer and employee meets the employer/employee relationship exception.
If a non-compete agreement does not fit into one of those eight listed relationships, can it be enforceable under Louisiana law?
If an agreement meets one of the eight listed relationship tests, are there other requirements for an enforceable agreement under La. R.S. 23:921?
Yes. If the non-compete agreement is between one of the eight relationships listed in the law, an enforceable non-compete agreement in Louisiana can be for no longer than two years from date of termination of the relationship. It can be shorter, but it cannot be any longer than two years. Additionally, the geographical area of prohibition for which someone is prohibited from competing must be listed in the non-compete agreement “by parishes, municipalities, or parts thereof.” (i.e., you are prohibited from competing in the Parishes listed below). Finally, some Louisiana courts require that the business in which a party is prohibited from competing be defined therein. Other Louisiana jurisprudence holds that a definition of the business is no longer required. However, if a definition of the business is included, it cannot be overly broad. Including a narrow and accurate definition of the business in your agreement is recommended.
Can a radius be used (50 miles from any office location) to define the geographical area of prohibition?
No. The area of prohibition must be “specified” by “parish, municipality or parts thereof.” Louisiana jurisprudence has specifically held that a radius used to define the area of prohibition fails to meet the requirements of La. R.S. 23:921.
Can an employee be told that if they refuse to sign a non-compete agreement they will be terminated? Is that legal duress?
As long as they are an at-will employee, an employee can be fired for refusing to sign a non-compete agreement according to Louisiana jurisprudence.
Can damages be recovered for violation of a valid non-compete agreement in Louisiana?
Yes. According to La. R.S. 23:921, “damages for the loss sustained and the profit of which” has been deprived is recoverable. Liquidated damages, however, according to Louisiana jurisprudence, are not recoverable for violation of non-compete agreements in Louisiana.
Are there some professions, such as doctors, hair stylists, and stockbrokers, in which they form such a close relationship with their patients/customers that Louisiana law prohibits the use of non-compete agreements in these situations?
Louisiana law prohibit the use of non-compete agreements for doctors, hair stylists, or stockbrokers, despite the close relationship formed with their patients/customers. There is one profession in Louisiana, however, in which La. R.S. 23:921 specifically prohibits the use of non-compete agreements. That profession?…Automobile Salesmen.