Individuals as well as corporations and other business entities without an existing presence in Louisiana are often unfamiliar with and unprepared to comply with Louisiana’s law regarding non-compete agreements. Unlike the majority of other states, Louisiana does not employ a reasonableness test, (are the agreement’s restrictions reasonable) to decide whether a given non-compete agreement is valid and enforceable.
To the contrary, Louisiana contracts that restrain someone’s right to work are presumed to be invalid. Furthermore, Louisiana law prevents employer efforts to avoid the applicability of Louisiana’s law by designating that another state’s law will govern a non-compete agreement involving an employer/employee relationship in Louisiana.
The validity of non-compete agreements in Louisiana is strictly controlled by La. R.S. 23:921 and its judicial interpretation. La. R.S. 23:921(A)(1) begins with a general prohibition against any agreement whereby anyone is restrained from exercising a lawful profession, trade, or business, with only narrow exceptions to this general prohibition. 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 a strong public policy against non-compete agreements. Because these agreements restrict the right of an individual to work in a chosen field, Louisiana jurisprudence has narrowly construed application of the exceptions to the general prohibition stated in La. R.S. 23:921. These exceptions, for the most part, are based upon relationships. The list of exceptions includes 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 defined by parishes, municipalities, or parts thereof, together with a term not to exceed two years from date of termination of the relationship. These requirements are derived directly from the applicable Louisiana law.
Additionally, Louisiana courts have, in certain situations, required that non-compete agreements narrowly and accurately define the business in which the individual is prohibited from competing.
In further protecting the right of employees to work in their chosen field of employment, La. R.S. 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 their ex-employer, the applicability of the provision in the non-compete agreement selecting the applicability of another state’s law is only valid if the employee agrees to it again, once their ex-employer complains about the alleged violation of the non-compete agreement.
La. R.S. 23:921(2) provides:
(2) 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.
Therefore, drafting an enforceable non-compete agreement in Louisiana requires much more than reasonableness. All requirements of La. R.S. 23:921 must be met for a valid non-compete agreement in Louisiana. Considering incorporating a non-compete agreement into your employee hiring package, theattorneys at The Kyle Law Firm can help, give us a call at: 225-293-8400 to discuss your options with a business lawyer dedicated to protecting your interests.