• Beyond The Myth and Mystery of Non-Compete Agreements
  • November 14, 2017 | Author: Marc S. Whitfield
  • Law Firm: Taylor, Porter, Brooks & Phillips, L.L.P. - Baton Rouge Office
  • Have you ever wondered why certain urban legends or myths never seem to die? I found myself wondering this recently when a local public persona was fired from a high-profile job. As is often the case, the local social media immediately seize upon this news with random posters quickly sharing their views as to the legality of non-compete clauses in Louisiana. While browsing through a series of such posts, I was struck by the number of people expressing the confident view that non-compete clauses, or agreements, are not valid or enforceable in Louisiana.

    On its face, Louisiana’s non-compete statute seems reasonably clear and straightforward. LA. R.S. 23:921essentially provides that every agreement that restrains someone from engaging in any profession, trade or business is null and void, unless the prohibition against competing meets one of the specific exceptions provided in 23:921. In short, non-competes are not enforceable in Louisiana, unless the non-compete clause or agreement fits within one of the statutorily-recognized exceptions. Or, if you prefer, non-compete agreements are valid and enforceable in Louisiana, unless a court concludes that the agreement is incorrectly drafted.

    To fit within the statutory exception that permits non-compete agreements within the context of employer-employee relationships, R.S. 23:921(C) provides that the agreement may restrict the employee “from carrying on carrying or engaging in a business similar to that of the employer” and/or “from soliciting customers of the employer,” but only:

    1. within a expressly identified territory consisting of a parish or parishes, or municipality or municipalities, or parts thereof, in which the employer is operating, and

    2. the non-compete restriction cannot exceed a period of two years from termination of employment.

    However, as with many laws, a recent decision by the First Circuit Court of Appeal shows that the real mystery appears when a court is called upon to interpret and apply the plain language of R.S. 23:921.

    In Paradigm Health System, L.L.C. v. Faust, 218 So. 3d 1068 (La. Ct. App. 1st Cir. 2017), the non-compete clause provided that the doctor could not “engage in the practice of medicine or render any medical services to any business similar to those services provided by” his employer for a period of two years from the termination of his employment within St. Tammany, Jefferson and Tangipahoa parishes.

    On its face, the non-compete appears to be clearly enforceable since it complies with the exception provided in R.S. 23:921(C). It only prohibits the doctor from engaging in a business similar to that of his employer within the expressly identified parishes and it is limited to 2 years. Yet the trial court and the court of appeal both concluded that the non-compete clause was invalid. Maybe those people expressing the view that non-compete clauses are invalid and unenforceable in Louisiana are more right than wrong.

    If the doctor’s non-compete complies with the express requirements of R.S. 23:921, where did the employer go wrong in this case? The court of appeal noted that the plaintiff hired Dr. Faust “in the field of anesthesia and interventional pain management” yet the non-compete clause prohibited Dr. Faust “from engaging ‘in the practice of medicine’ or rendering ‘any medical services to any business similar to those services provided by” the employer. The court explained the fatal flaw to enforceability by observing “nowhere does the employment agreement define the services provided by the employer.”

    The importance of this ruling is that the First Circuit appears to have added an additional non-statutory requirement to R.S. 23:921(C), i.e., a requirement that the non-complete clause must also fully identify the employer’s business. This significance of this ruling is magnified by the fact that:

    1. the employer used almost the exact language in the statute to essentially prohibit the doctor from “engaging in a business similar to that of the employer” yet the court concluded that this description was insufficient.

    2. 23:921 does not expressly require the employer to identify the employer’s business beyond generally permitting the employer to prohibit the employee from “engaging in a business similar to that of the employer.”

    3. The First Circuit had previously concluded in a similar scenario that “we find the law does not require in a non-competition agreement a specific definition of the employer’s business” and expressly noted that “Louisiana jurisprudence supports this finding” and then cited several Louisiana cases that upheld the validity of non-compete clauses containing only a general prohibition against engaging in a business similar to that of the employer.

    So, what is the takeaway here? How do you avoid the unexplained mysteries of R.S. 23:921.

    • First, understand that Louisiana has a strong public policy against enforcement of non-competition agreements so each such agreement will be strictly construed in favor of the employee and against the employer, which essentially means that the non-compete clause must be crafted with great care.

    • Some courts in Louisiana appear to have a stronger policy against enforcement of non-compete agreements than other courts so you should consider drafting your agreements to satisfy the most rigorous standards.

    • Make sure the non-compete clause complies not only with the statutory exceptions permitted in R.S. 23:921, but also satisfies applicable case law that interprets R.S. 23:921.

    • Do not attempt to broadly limit an employee’s future employment beyond the type of work that the employee is currently performing. If you feel broad language is necessary, seek legal counsel to discuss additional legal strategies that may avoid the results reached in the Paradigm Health case discussed above.

    • Use severance clauses efficiently so that the court still has a meaningful non-compete clause left to enforce, after severance of any invalid terms or provisions.

    • Don’t believe everything you read on social media.

    If you have questions about your non-compete agreements or wish to have them updated to address recent legal developments similar to those discussed above, please contact me at [email protected] to discuss your questions or concerns.