Everything You Need to Know (And Probably Don’t) About Covenants Not to Compete - Louisiana

The next state in our series exploring non-compete agreements is Texas’ neighbor to the east, Louisiana. As I like to say, when you travel east and cross the Sabine River from Texas to Louisiana all the words change but the concepts usually remain the same. This is partially true in Louisiana’s approach to covenants not to compete. For this chapter, we are joined by my partner Rob Ford who is licensed in Louisiana, the country’s only civil law jurisdiction. Like myself, Rob has handled a number of matters in this arena in Louisiana, and his insight is valuable.

Louisiana’s approach is similar to that of Texas in concept. Non-compete agreements are null and void in Louisiana and deemed to be against public policy,[1] unless the non-compete clause or agreement fits within one of the statutorily recognized exceptions. Like the safe harbor rules in Texas, a statutory exception exists for most employer-employee relationships,[2] allowing an employer to prevent a former employee from “carrying on or engaging in business similar to that of the employer” or from soliciting an employer’s customers.[3] However, under this exception, an employer-employee non-compete agreement is enforceable only if it:

1. Expressly identifies the territory consisting of a parish or parishes, or municipality or municipalities, or parts thereof, in which the employer is operating, and
2. Cannot exceed a period of two years from termination of employment.

These rules are more confining than Texas but give more clarity on how to draft these provisions. Also, non-compete agreements are strictly construed in favor of the employee and against the party attempting enforcement.

Louisiana’s Non-Compete Statute can be found at Louisiana Revised Statutes § 23:921.

In Louisiana, continued employment constitutes sufficient consideration to support a non-compete or non-solicitation agreement.[4]

The geographical limitation of a non-compete agreement under Louisiana law has two requirements: (1) The parishes or municipalities where competition is restrained must be specified within the agreement itself, and (2) enforcement is limited to parishes or municipalities where the first employer actually conducts business.[5] Regarding the specificity requirement, what is important is that the geographic limitation be express and clearly discernable.[6] A covenant not to compete that generally references parishes or municipalities is unenforceable.[7] Courts also require that the specified locations must be where the employer actually has a location or customers.[8] Below are some specific examples from Louisiana case law:

• Insurance agent for brokerage - Contract with language stating “whatever parishes, counties and municipalities the Company...conducted business” was unenforceable because it lacked specificity as to which parishes were included and where employer did business.[9]

• Sales representative for HVAC company - Employee’s covenant not to compete failed to identify any geographic boundaries, rendering it unenforceable.[10]

• General manager for debt collector - Employee’s covenant not to compete was rendered unenforceable because the language “to all parishes or counties [employer] covers on a like business in said parishes or counties” lacked specificity.[11]

• President of water utility company - Non-compete agreement that contained a blank space where the territorial limits were to be included did not meet statutory requirement for covenant not to solicit customers of former employer and was thus invalid.[12]

• Physician - Geographical limitation in covenant not to compete that prohibited a physician from practicing in two specifically listed counties was enforceable.[13]

The statute limits enforcement of a non-compete agreement to a period up to two years from termination of employment.[14] Courts in Louisiana have strictly enforced the statutory limitation, invalidating non-compete agreements for a period of longer than two years.[15]

A non-compete agreement can only restrict an employee from “carrying on or engaging in a business similar to that of the employer.”[16] Louisiana courts have taken care to emphasize that “the law does not require a specific definition of the employer’s business.”[17] Still, non-compete clauses that contain overly broad definitions of the employer's business are null and void under Louisiana law.[18]

Here are a few examples of non-compete agreements found to contain overly broad definitions of the employer’s business:

• Non-compete clause prohibiting speech therapist “from engaging or carrying on a business similar to that of [employer]” did not adequately define the employer’s business and was unenforceable.[19]

• Non-compete clause prohibiting a doctor from the “practice of medicine,” instead of specifying pain management, was overbroad and void.[20]

• Non-compete clause prohibiting the “practice of public accounting or tax preparation in any fashion” was overbroad because not only did it prohibit employee from starting her own accounting practice but it was also a prohibition on all public accounting.[21]

In contrast, here are a few examples of non-compete agreements whose definition of the employer’s business was sufficiently narrow:

• Non-compete agreement defining hazardous waste cleanup company’s business as including “waste transportation and disposal,” and further clarifying that the business was limited to “oil and hazardous spill containment,” was sufficiently narrow — particularly given that the departing employees testified that they were aware of the nature of their employer’s...