Equalizing the Threat of Noncompete Agreements: Solutions Beyond Louisiana's Tangled Web of Nullity

• Author: Kristen Amond
• Position: J.D./D.C.L., 2016, Paul M. Hebert Law Center, Louisiana State University.
• Pages: 1235-1275

Equalizing the Threat of Noncompete Agreements: Solutions Beyond Louisiana’s Tangled Web of Nullity TABLE OF CONTENTS Introduction ................................................................................ 1236 I. Noncompete Agreements Throughout the United States and Louisiana .............................................................................. 1241 A. Noncompete Agreements Throughout the United States ..... 1242 B. Noncompete Agreements in Louisiana ................................ 1243 1. Louisiana’s Oscillating History of Noncompete Agreements .................................................................... 1244 2. Requirements of an Enforceable Noncompete Agreement Under Section 23:921 ................................. 1248 II. The Doctrine of Nullity as Applied to Noncompete Agreements ................................................................................. 1249 A. Dissolution and Damages: Louisiana Civil Code Article 2033 and Its Application to Noncompete Agreements ........ 1250 1. Application of Article 2033: Restoring a Party through Damages ........................................................... 1251 2. Restoring the Employee Through Article 2033: Kimball v. HEALTHCAREfirst, Inc. .............................. 1252 B. Reformation of Contractual Instruments .............................. 1254 1. Reformation of Noncompete Agreements Throughout the United States ............................................................ 1254 2. Reforming Noncompete Agreements in Louisiana: AMCOM of Louisiana v. Battson .................................. 1256 C. Lost in the Nebulous Web of Nullity ................................... 1258 III. Legal Problems Leading to Overused and Overly Broad Noncompete Agreements ........................................................... 1259 A. Overly Broad Noncompete Agreements .............................. 1259 B. Overuse of Noncompete Agreements .................................. 1260 1. Protectable Interest Requirement in Other Jurisdictions ................................................................... 1260 2. Louisiana’s Battle with Certainty and Fairness ............. 1262 IV. Alternative Solutions to the Overly Broad and Overused Noncompete Agreements ........................................................... 1263 A. A Legislative Solution: Overhaul Louisiana’s Noncompete Law ................................................................. 1263 1236 LOUISIANA LAW REVIEW [Vol. 76 1. Disincentivize Overbreadth of Noncompete Agreements: Eliminate Reformation ............................. 1264 2. Curtail the Overuse of Noncompete Agreements: Require a Protectable Interest ........................................ 1264 B. A Judicial Solution: Arming Employees and Employers with the Counterweight of Intentional Interference with Contractual Relations ........................................................... 1265 1. Intentional Interference with Contractual Relations in Other Jurisdictions ..................................................... 1266 2. Intentional Interference with Contractual Relations in Louisiana ....................................................................... 1267 3. Adopting Tortious Interference in the Employment Context in Louisiana ...................................................... 1269 C. The Not-So-Magic Formula ................................................. 1273 Conclusion .................................................................................. 1274 INTRODUCTION Noncompete agreements, once used infrequently and limited to highly specialized industries, are becoming ubiquitous in employment contracts. 1 These agreements are frequently overly broad and often restrict employees who have no specialized knowledge or training and who pose no threat to an employer’s competitive advantage. One such case is that of Catherine Kimball. HEALTHCAREfirst (“HCF”) offered Catherine Kimball employment as a consultant and salesperson in charge of providing technology services to healthcare agencies. 2 Before Kimball accepted the Copyright 2016, by KRISTEN AMOND. 1. See Greg T. Lembrich, Note, Garden Leave: A Possible Solution to the Uncertain Enforceability of Restrictive Employment Covenants , 102 COLUM. L. REV. 2291, 2297 (2002) (“Given the degree of protection that restrictive covenants can offer, some commentators have suggested that employers should routinely include them in their employees’ contracts, even if they may not be necessary.”). 2. HEALTHCAREfirst is a national company that provides web-based home health and hospice services to caregivers. About Us , HEALTHCAREFIRST, http://w2.healthcarefirst.com/who-we-are/ (last visited Mar. 9, 2016). The company is based in Missouri, but has an office in Baton Rouge, Louisiana. Contact HEALTHCAREfirst , HEALTHCAREFIRST, http://w2.healthcarefirst.com/contact-us/ (last visited Mar. 9, 2016). Catherine Kimball’s attorney, Amy Newsom, provided all of the information on Kimball’s journey through litigation. Interview with Amy Newsom, Newsom Law Firm, in Baton Rouge, La. (Sept. 18, 2014). Litigation arose in the Middle District of Louisiana. Kimball v. 2016] COMMENT 1237 position, but after she had resigned from her previous employment, HCF informed her that she would be required to sign a noncompete agreement. 3 Because Kimball had already resigned from her previous employment, she felt that she had no option but to sign the noncompete agreement. HCF, a national company that used both telephone and web-based technology, allowed Kimball to work from her home in Baton Rouge, Louisiana. Kimball’s service territory changed 13 times during her three years of employment, allowing Kimball to service agencies in all 50 states during her employment with HCF. 4 Despite working for HCF for years, the company laid off Kimball, forcing her to seek new employment. 5 Kimball applied to work at a California company that did nearly identical work to HCF and would allow her to work from her home in Louisiana. The California employer was ready to offer Kimball a job when she told the company that she had signed a noncompete agreement with HCF. The company refused to hire Kimball unless HCF released her from the noncompete agreement or a court invalidated the agreement. HCF refused to release Kimball from the agreement, and as a result, the California employer declined to offer Kimball employment. Because of the restrictive noncompete agreement, Kimball was left unemployed, and she had few options for future employment. The noncompete agreement restricted employees from working in every state in the United States, Guam, and Puerto Rico 6 and thus was geographically overbroad under Louisiana law. 7 Only after Kimball filed suit, did HCF concede that the noncompete agreement was overly broad and seek reformation of the agreement to make it enforceable. 8 HCF’s concession, however, arrived too late. By the time the court declared Kimball’s noncompete agreement invalid, the California company had rescinded the job offer. 9 Throughout the litigation HEALTHCAREfirst, Inc., No. 12–395, 2013 WL 4782139 (M.D. La. Sept. 5, 2013). 3. Interview with Amy Newsom, supra note 2. 4. Because Kimball worked in each state, HCF’s noncompete agreement, which forbade ex-employees from working in any place where they did work for HCF, effectively prohibited her from competing in any state in the nation. 5. Interview with Amy Newsom, supra note 2. 6. Memorandum in Support of Motion for Summary Judgment at 5, Kimball v. HEALTHCAREfirst, Inc., No. 12–395 (E.D. La. Sept. 4, 2012), 2012 WL 6197360. 7. The agreement violated Louisiana law because it did not restrict competition to the parishes or municipalities in which the employer did business. LA. REV. STAT. ANN. § 23:921 (Supp. 2015). 8. Kimball v. HEALTHCAREfirst, Inc., No. 12–395, 2013 WL 4782139, at *2 (M.D. La. Sept. 5, 2013). 9. Interview with Amy Newsom, supra note 2. 1238 LOUISIANA LAW REVIEW [Vol. 76 concerning the validity of the noncompete agreement, Kimball hoped that the California company would hold her job offer, so she did not seek other employment. Even if she had, the noncompete agreement would have likely prevented her from being hired because there had been no judicial declaration that the agreement was overly broad. Because Kimball could not work, she was unable to pay her bills and almost lost her home due to foreclosure. Although Kimball’s situation is an extreme example of the damage caused by an overly broad noncompete agreement, other problems arise from Louisiana’s current noncompete law. This law causes problems for two reasons: noncompete agreements are often overly broad and are overused. Kimball’s situation demonstrates the negative consequences of overly broad noncompete agreements. Overly broad noncompete agreements are contrary to Louisiana’s public policy in favor of competition, and therefore are absolutely null. 10 Aggrieved employees, however, find no recompense in the three remedies provided by Louisiana’s nullity doctrine—dissolution, reformation, and damages. 11 As such, Louisiana’s noncompete landscape should provide employees with avenues for recovery if they suffer economic harm due an illegally restrictive agreement. Current Louisiana law incentivizes employers to draft overly broad noncompete agreements because Louisiana courts are willing to sever overly broad provisions if the agreement contains a severability clause, 12 which renders the remainder of the agreement enforceable. 13 Between the termination of employment and the initiation of litigation to reform a noncompete agreement, the overly broad agreement remains in place. During this time, the employer benefits from the employee’s uncertainty as to the enforceability of the noncompete agreement, and the employee is unlawfully restricted from competing. 14 The court’s discretion to determine what portions, if any, of a noncompete agreement can be 10...