Requiring your employees to be bound by non solicitation and non competition agreements can be a benefit to you. Did you know that you can prevent a departing employee from competing against you or from using your intellectual property, including your business knowhow and customer list? Under Louisiana law, you can protect what is vital to the continued success of your company by requiring that your employees sign an at-will employment agreement with covenants not to complete, solicit, or use confidential information garnered during employment with your company. Although these types of contracts are enforceable under Louisiana law, careful drafting is necessary. It is important for employers to consult legal counsel before drafting employment contracts with non competition and non solicitation agreements.
Non Competition and Non Solicitation Agreements
Generally speaking, non competition agreements prohibit an employee from working for a competitor after leaving the prior employer’s business. Non solicitation agreements forbid former employees from reaching out to co-employees in an attempt to persuade them to leave their current employment and prevent former employees from contacting customers or suppliers of the employer with the intent to convince them to discontinue doing business with the employer. Both types of agreements must be drafted to in strict compliance with applicable law to be enforceable.
Both non competition and non solicitation agreements are governed by La. R.S. 23:921(C):
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.
This means that an employer wishing to enter into non competition and non solicitation agreements with its employees must comply with the following requirements:
- The employer can only prohibit employees from working in or soliciting individuals from similar lines of business.
- The employer must specify the geographical area where the employee will be prohibited from working or soliciting in terms of specific parishes, municipalities or parts thereof.
- The employer must actually either have a physical location or be actually conducting business in the identified geographical area (“Restricted Territory”).
- The restrictions cannot last longer than two (2) years from the time that employment is terminated.
Limits on Non Competition and Non Solicitation Agreements
Louisiana courts construe this law very strictly. For example, if the employer fails to comply with the requirement to list the Restricted Territory or extends the prohibition beyond two years from termination of employment, the agreement will not likely be upheld by Louisiana courts, and the former employee will be free to compete or solicit immediately upon the termination of his employment.
It is important to note that these restrictions do not apply to confidentiality agreements. Your trade secrets, including customer lists, are governed by separate areas of law and are not limited to two years of protection. Due to the complex nature of non competition and non solicitation agreements in Louisiana, employers should consult their legal counsel prior to executing these types of provisions to make certain that they are protected. If you do not fully comply with all of the legal requirements surrounding restrictive covenants, they likely will offer no protection at all.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.