Non-Competition Agreement Between Employers and Former Employees Are Valid In Louisiana
In a recent decision, a Louisiana Court of Appeal held that contracts with non-competition and non-solicitation provisions between an employer and five employees were enforceable. Savard Labor & Marine, Inc. v. Glo Resources, LLC, First Circuit, No. 2020-CA-0192 (11/6/20). The employer, which was located in East Baton Rouge, Louisiana, was in the business of providing temporary and contract labor to various businesses. The employment contract that each employee signed prohibited them from competing against the employer for two years following the termination of employment. Each of the former employees left the company at different times. And all of the employees began working for the same company that competed against their former employer. The new competitor company was also
located in East Baton Rouge.
When the former employer learned about the new company, it filed a petition for preliminary
injunction, permanent injunction, and damages alleging that one of the former employees formed the competing business that was engaged in the same business as the former employer in East Baton Rouge. The petition asked the court to prohibit the five former employees from competing with their former employer, from soliciting its customers, and from disclosing, converting, and using confidential information.
The former employees denied the allegations of the petition and argued that the employment
agreements were invalid, nonbinding, and unenforceable. Specifically, they claimed that the non-competition clause contained an overly broad description of Savard's business, contained an overly broad geographical restriction, and that as former employees, they were not in breach of the non-competition or non-solicitation provisions of their respective employment agreements.
The Court agreed with the former employer holding that the non-competition and non-solicitation agreements were enforceable. It stated that Louisiana law on non-competition agreements, which is codified under La. R.S. 23:921, allows non-competition agreements to be enforceable. Under the law, employers and employees are allowed to enter into non-competition agreements which permit an employee to agree with his employer to refrain from engaging in a business similar to the employer's business and/or soliciting the employer's customers for a period not to exceed two years from the employee's termination date. If a former employee breaches the agreement, the law allows the former employer to go to court to stop the offending conduct, to receive damages, and to obtain injunctive relief to enforce the terms of the non-competition agreement.
The business of the former employer was defined in the employment agreement as follows: “[C]ompany and its affiliated entities (“Affiliates”) are engaged in the business of providing temporary and contract labor to various businesses (the “Business”).” The employment agreement further provided, in pertinent part:
6.1 Non-Competition. Team Member agrees that during Team Member's Employment and for a period of two (2) years immediately following the termination of the Employment for any reason, with or without cause (the “Restricted Period”), Team Member will not carry on or engage in, directly or indirectly, the Business in any Protected Area (defined below), so long as Company carries on the Business therein, except for benefit of Company. Team Member further agrees that Team Member will not, during the Restricted Period, become employed by or consult with any entity or individual that engages in the Business, or any part thereof, in any portion of the Protected Area.
6.2 Non-Solicitation of Customers of Company. Team Member agrees that, during the Restricted Period, Team Member will not, in the Protected Area, solicit, suggest, induce, or encourage any customer (defined below) either to cease doing Business with Company or to do Business with any competitor of Company, in the Protected Area, so long as company carries on the Business therein.
The Court found that the owner of the competing business, Naquin, who later employed the remaining employees, knew exactly what type of business activities were prohibited. He worked in a managerial capacity with the former employer for eight years, with nearly three-years of employment as the “right hand” to the former employer.
This case illustrates that employers in Louisiana are able to restrict employees from competing against them for up to two years after the employees leave the business. Thus, a non-competition agreement in Louisiana is allowed as long as: 1) the non-competition agreement specifies a certain parish or parishes, a particular municipality or municipalities, or parts thereof; 2) the entity carries on a like business therein; 3) the agreement does not exceed a period of two years from termination of the relationship; relationship; 4) the agreement is specific in defining the nature of the business; and the non-competition agreement states the activities that the shareholders, partners, and members are prohibited from engaging in.
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This information has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorney in connection with any specific situation under federal and/or Louisiana law and the applicable state or local laws that may impose additional obligations on you and/or your business.
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