Author Davis Allgood is a member of the Jones Walker law firm’s Business & Commercial Litigation and Healthcare Practice Groups. He is also a Partner at the firm and a contributor to at Trade Secret Insider, which chronicles legal insights on trade secrets, non-competes, computer fraud and confidential data theft. This article was originally posted on tradesecretsinsider.com.
A Louisiana appellate court recently decided that a non-competition agreement was unenforceable. But not because it contained unreasonable geographic or temporal restrictions or failed to strictly comply with Louisiana’s non-compete statute. Instead, the court found that the non-competition obligations had already expired during employment. That is, even though the employee continued to work for the company after the expiration of the specified term of his employment agreement, the court found that the non-compete period began to run from the end of the employment agreement’s term—not from the end of the employee’s continued service.
The Louisiana Court Decision
In Gulf Industries, Inc. v. Boylan, (La. App. 1st Cir. June 6, 2014), an executive officer for a company worked under a written employment agreement that provided for a one-year employment term and for a two-year non-period that was to run from the date of his “last services.” The executive officer continued to work for the company for slightly over two years after the term of his employment agreement expired, then quit to form a competing company of his own. Louisiana’s First Circuit Court of Appeal held that the executive officer had become an at-will employee at the conclusion of the employment agreement term, and the two year non-compete period had started to run at that time. Consequently, the former employer could not obtain an injunction against the former executive officer.
Additional facts complicated the court’s analysis somewhat. After the term of the employment agreement, but while the executive officer continued to serve, a new owner purchased a majority interest in the company. The buyer had the executive officer sign the purchase agreement as a key employee. The purchase agreement included a schedule that listed the executive officer as one of the company’s employees under “Employment Agreements (Incl. Non-Compete Agreements).” Shortly before the transaction closed, the executive officer also went back and initialed the pages of an exhibit to his old employment agreement that listed the territories in which he could not compete.
The company argued that these additional facts showed that the executive officer had agreed to extend the terms of his employment agreement. Extension of the employment agreement would have meant that the non-compete agreement continued to bind the executive officer. The executive officer countered this evidence by testifying that he had no such intention. The court agreed with the executive and held that the company did not bear its burden of proving an extension of the agreement.
The Take Away
Louisiana, like many states, requires that non-compete and non-solicitation agreements meet precise requirements if they are to be enforced and will interpret the language in those agreements strictly. Employers trying to enforce non-compete agreements face a strong public policy that disfavors such agreements and that demands strict adherence to the statutory or common law requirements. Additionally, as this case demonstrates, courts can look to other provisions within those agreements to decline granting the requested relief. Employers need to pay close attention to the requirements, as well as all contractual provisions that could allow a court to decline enforcement. It’s a sound business practice to periodically review non-compete agreements—and involve experienced counsel in the process. Minor revisions could add major value.