- Louisiana Supreme Court Strikes A Blow Against Non-Competition Agreements
- August 13, 2003 | Author: G. Blane Clark
- Law Firm: Kean Miller Hawthorne D'Armond McCowan & Jarman, L.L.P. - Baton Rouge Office
In the case of SWAT 24 Shreveport Bossier, Inc. v. Robbie Bond, No. 00-C-1695 (La. 2001), the Louisiana Supreme Court resolved a split among the Louisiana Circuit Courts of Appeal concerning the interpretation and application of La. R.S. 23:921 with respect to the enforceability of non-competition agreements signed by employees. La. R.S. 23:921 provides that as a general rule non-competition agreements are not enforceable, but provides certain exceptions. The particular exception analyzed in this opinion is the one contained in Subsection C of this statute. La. R.S. 23:921(C) provides as follows:
3. Any person, including a corporation and the individual shareholders of such corporation, who is employed as an agent, servant, or employee may agree with his employer to refrain from carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment. . .
This Court held that employee non-competes are not enforceable if an employee is prevented from accepting employment from a competitor that the employee does not own. This Court interpreted "may agree with his employer to refrain from carrying on or engaging in a business similar to that of the employer" to mean owning his own business that carries on or engages in a business similar to that of the employer.
There are several important lessons for drafting future non-competition agreements. First, the subject agreement in this case did not have a separate provision providing that the employee would not solicit customers. It is important to note that the statute references general non-competition agreements and agreements whereby the employee merely agrees not to solicit customers. While the court struck down this non-compete, it held that agreements not to solicit customers would be enforceable whether the employee owned its own business or was working for someone else. Therefore, it is critical that such a restriction be contained in the non-competition agreement, especially in a situation where the employee's post-employment solicitation of customers is possible.
Second, there should be two separate non-competition restrictions, one that indicates that the employee is not allowed to compete in the capacity of owning his own business and one that prevents competition in any capacity. By using this approach, a court could delete the overly broad provision but still leave intact the more narrow provision. In addition, having the broad provision could be helpful if the legislature amends the statute to overrule the court's interpretation of the existing statute and until then would allow an employer to argue that its agreement and situation are somehow different from those at issue in the SWAT case.
Third, this opinion also highlights the importance of two different types of severability or savings clauses. In the subject non-competition agreement, any language that was unenforceable was to be excised or deleted from the agreement with the remaining language to be enforced. The other type provides that the court should, rather than deleting the offending language, rewrite or reform the language. In the case of non-competition agreements, the court could be asked to reform the language of the contract to provide for the broadest restriction that is enforceable. The agreement at issue in the SWAT case had the first type. The court found that once it deleted the offending portion of the contract, there was nothing left that contained a restriction on the employee. Therefore, there should be a savings clause that requires the court to "reform, redraft, or create a new agreement," as opposed to requiring "the offending portion of the agreement be severed."
Fourth, this agreement was between an employee and employer, as opposed to a seller and buyer of a business. One can only assume that in the latter context the Supreme Court would be far more expansive in its interpretation of what is enforceable, but that is by no means clear. After all, the pertinent part of La. R.S. 23:921(C) that was analyzed so carefully by this court is identical to La. R.S. 23:921(B) which relates to the sale of a business.
Because losing an employee, even one that does not solicit customers, can be very detrimental to the employer, especially in a situation where the employee has received a great deal of training, Justice Traylor, in his excellent dissent, questioned the majority's focus on the non-solicitation of customers and accused the majority of strangling the statute.
The majority's interpretation of the statute is wrong, in my opinion, but nevertheless, their opinion counts more than mine. Whether the employee is hurting the employer by owning his own business or by working for someone else should not matter. The legislature may amend the statute, but until then, I suggest revising your existing non-competition agreement forms to focus more heavily on the non-solicitation of customers, to split the general non-competition provision into two provisions, one that refers to owning your own business, and one that refers to other capacities, and to be sure to have a savings clause that requires the court to reform the contract if necessary.