One of the worst nightmares of small business owners in Louisiana is the decision of a key employee to quit and accept a job with a competitor. One solution to this problem is the non-compete agreement in which the employee agrees not to accept a job with a competitor or otherwise compete with the employer. Louisiana law sharply restricts the use of such agreements, but in the right circumstances, a non-compete agreement can be enforced and can protect the employer’s business against encroachment from competing corporations.
Louisiana law generally makes all agreements by which a person is “restrained from exercising a lawful profession, trade, or business of any kind” null and void. Automobile salesmen are specifically prohibited from agreeing to refrain from selling new cards. The statute, however, contains a number of useful exceptions. For example, a non-compete agreement is valid if it is limited to a term of two years and to parishes or municipalities where the employer in fact carries on its business. In some cases, this provision can allow non-compete agreements that are valid throughout the state.
Non-compete agreements are also valid in other circumstances. If the seller of a business agrees to refrain from engaging in the same business for a period not to exceed two years, the agreement is valid and can be enforced by the buyer of the business. Partners may, upon dissolution of the partnership, agree among themselves to refrain from engaging in the same business or profession for a period of two years. Franchisors and franchisees are authorized to use non-compete agreements to protect the franchise enterprise from competition during the term of the franchise.
The non-compete law in Louisiana is unusually complicated. Anyone who is contemplating the use of such an agreement, or anyone who has been asked to sign one, may wish to consult an experienced business attorney for advice on the validity of the agreement.
Source: Louisiana Rev. Stat. §921, accessed on March 15, 2017