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Drafting smart noncompetes to protect your Louisiana business

If you are a Louisiana entrepreneur investing the time, money and effort to start a business, there are certain natural concerns you may have concerning future employee turnover. For example, your business may require extensive new employee training and on-the-job learning to get workers up to speed. If an employee takes his or her new knowledge about your industry or processes and leaves to start a new business or join a competitor, the financial investment into training will have been lost and will have to be made again to train a replacement.

For a business with an established customer base, a related worry can be that – especially in the local community – an employee could leave with a roster of customer names to solicit for business from a new or competing company.

Similarly, your operation may rely on confidential information for its success like scientific formulas, software programs, production processes, new product development, marketing techniques or other internal proprietary information. If an employee took this type of information with him or her to start a new business or share with a competitor, it could harm the success of your enterprise significantly.

Noncompete agreements

A noncompetion agreement, also called a covenant not to compete or simply a noncompete, is an agreement between an employer and employee that, as a condition of employment, restricts certain of the employee’s rights related to future jobs. A related agreement could be a nondisclosure or confidentiality agreement. These agreements are also referred to as restrictive covenants in connection with the terms of a future job.

Noncompetes are controlled by state law, which varies quite a bit among the states, in part because each jurisdiction must decide how to balance the rights of employers to protect their commercial interests and proprietary information, with the rights of employees to use their knowledge and skills in the legitimate search for gainful employment.

In the Pelican State, both statutes and case law (made by judges in court opinions) govern what a noncompetition agreement may restrict and how to make it enforceable – and noncompete law in Louisiana is quite complicated.

The kinds of terms contained in noncompetes can include:

  • An agreement not to take a job at a direct competitor or start a business in direct competition with the employer (within reasonable limits)
  • A restriction on how long an ex-employee may not work in a competitive job after leaving employment (Louisiana statute restricts this to two years from termination of the original job.)
  • A limitation on the geographical area within which the ex-employee may not work (Louisiana statute only allows restriction to all or parts of parishes or municipalities where the original employer also does business.)
  • A provision agreeing to apply the law of a particular state or use the courts of a particular state if there is a later disagreement over the noncompete (Louisiana law says these choice of forum or of law clauses must be “expressly, knowingly, and voluntarily agreed to and ratified by the employee”)

If an enforceable Louisiana noncompete is breached, a court may order it enforced or may order the payment of money damages and lost profits. On the other hand, if a noncompetition agreement is found by a court not to comply with state standards such as being overly broad, the law says that the agreement is null and void. Sometimes, however, depending on the circumstances and terms of the noncompete, a court will modify or reform the agreement by taking out an illegal provision and enforcing the remaining parts.

Legal representation crucial

Because of the complexity of this area of law, any employer needing to draft or negotiate a noncompete with a potential employee, or challenge a later breach of a noncompete if a former employee takes a job or begins a business in violation of the agreement, should enlist the advice and assistance of an attorney as early as possible. The lawyer may be able to settle a disagreement over a noncompete through negotiation, rather than having to go to court. If litigation becomes necessary, legal counsel should advocate vigorously

On the other hand, employees facing noncompete issues should also obtain legal advice.

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