One size does not fit all when it comes to Louisiana appeal courts' interpretation of noncompete and nonsolicitation agreements.One size does not fit all when it comes to Louisiana appeal courts' interpretation of noncompete and nonsolicitation agreements. By Steven C. Lanza
Wednesday, May 15, 2013
It has been almost 80 years since the subject of noncompetition and nonsolicitation agreements in the workplace started to evolve under Louisiana's law and jurisprudence. Since that time, Louisiana courts have reviewed a steady flow of disputes between employers and former employees to determine whether their noncompetition and nonsolicitation agreements are valid and enforceable.
The statutory provision in Louisiana that currently governs such contracts between employer and employee is found at La. R.S. 23:921, and it reads in part as follows:
"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."
Through the enactment of this statute, the Louisiana Legislature attempted to expand the use of noncompetition and nonsolicitation agreements in the workplace and recognized that employers have a right to protect their business investments.
Over the years, there have been a number of legally significant appellate court decisions involving disputes between Acadiana-based employers and their former employees related to such agreements.
In a case involving Petroleum Helicopters Inc., the Third Circuit Court of Appeal ruled that certain noncompetition and nonsolicitation provisions contained in an employment agreement executed by the company's former vice president and chief financial officer were valid and enforceable against him. The former officer was sued by PHI after he left his employment with the company to go to work for a direct competitor. The contract provision at issue provided that former officer would "refrain from carrying on or engaging in a similar business, and refrain from soliciting customers of PHI within the parishes in which PHI carries on a like business." The former officer contended that the restrictive provision was invalid since it did not specify the parishes in which he could not compete with PHI. The Third Circuit Court of Appeal rejected this objection and held that, even though the restricted parishes were not specified by name in the contract, the former officer would "surely be aware of the parishes in which PHI conducts its business."
In another case, H.B. Rentals sued its former president after he went to work for a competitor. H.B. Rentals sought to enforce the nonsolicitation provisions in an agreement that had been executed by the former officer. The restrictive provisions at issue purported to prohibit him from competing and soliciting customers and/or potential customers of H.B. Rentals. The Third Circuit Court of Appeal held that the agreement was overly broad, and thus null and void, because it did not designate the parishes or municipalities in which the former officer was prohibited from soliciting customers. Furthermore, the court held that language in the agreement that attempted to prevent the former officer from soliciting potential customers of H.B. Rentals was also invalid because any entity in the oil and gas field could be considered a potential customer of H.B. Rentals.
As the cases noted above illustrate, La. R.S. 23:921 has been subject to varying interpretations by Louisiana courts of appeal. Whether any particular noncompetition or nonsolicitation provision will be enforced by Louisiana courts typically turns on the facts presented in the case. However, the Louisiana Legislature amended the statute in 2010 to provide that every noncompetition or nonsolicitation agreement that actually complied with the statute "shall be enforceable."
Although it is too early to determine whether Louisiana courts will now fundamentally change their "disfavored" view of noncompetition and nonsolicitation agreements, one thing is for certain: employers and employees in our state will struggle with these types of agreements for many years to come.
Steven C. Lanza is an attorney with the Onebane Law Firm in Lafayette. His practice focuses on business law and commercial litigation, including matters involving noncompetition and nonsolicitation agreements.