Oppress the Employee: Louisiana s Approach to Noncompetition Agreements

• Author: Carey C. Lyon
• Pages: 606-654

Page 606

The author thanks Professor William Corbett for his thoughtful advice and generous assistance in the writing of this article, for always being willing to read and comment on another draft at a moment's notice, and for encouraging the author to accept a position as a Junior Associate of the Louisiana Law Review.

As this comment goes to press, the Louisiana Supreme Court has handed down its decision in Swat 24 Shreveport Bossier, Inc. v. Bond, 2001 WL 754754 (La. 6/29/01). Although that decision resolved certain conflicts in the circuit courts of appeal which are discussed in this comment, readers may find the comment useful in that it provides a comprehensive review of the law of noncompetition agreements up until the Swat 24 decision.

I Introduction

Imagine a recent college graduate, Bob, with a degree in Computer Science.¹This student seeks a job as a salesman with any company that will have him. The student is worried that he will never be hired because, even though he received decent grades, he has no prior work experience. After enduring many grueling interviews, Bob receives an offer to work as a Level One Salesperson for ComputerSoftwareCompany.Com. The hiring partner informs him of his salary, his benefits, and what is generally expected of him. The partner tells him that the company will provide all of the training concerning how to sell the products. ComputerSoftwareCompany.Com has a number of major clients for whom they develop new software to meet their changing needs, and part of Bob's job includes contacting these customers regularly and informing them about new products. Bob is so excited about the job he has been offered that he immediately accepts.

The partner then presents Bob with a standard employment contract. The contract states that Bob is being hired as an employee-at-will. The contract includes a noncompetition agreement that prohibits Bob, upon termination of his employment with ComputerSoftwareCompany.Com, from working for any competitor of ComputerSoftwareCompany.Com in any capacity whatsoever for a period of two years from the termination of employment in all of the listed parishes. The agreement lists every single parish of Louisiana, even though ComputerSoftwareCompany.Com only has clients in East Baton Rouge, Ascension, Saint Charles, Saint James, and Orleans parishes. Bob signs the employment contract thinking that noncompetition agreements are never enforced against entry level employees.

Bob begins work at ComputerSoftwareCompany.Com. His first day goes well: he meets his co-employees, fills out more paperwork, sets up his cubicle, and learns all the passwords to access his desktop. He learns nothing about ComputerSoftwareCompany.Com's customers or products. On day two, the firing partner visits Bob with some news. The company is not doing well financially and has to make some cutbacks. Unfortunately for Bob, this means him-he is terminated. Dejected, Bob packs up his cubicle and heads home, but not before picking up a classified section of the newspaper.

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Bob notices that SoftwareDeveloper.Com is hiring. He interviews with the company and is hired, in fact, under the same terms as ComputerSoftwareCompany.Com had hired him. Bob calls a friend who still works at ComputerSoftware.Com to tell him the good news that he has been hired so quickly. Unfortunately for Bob, his friend informs management at ComputerSoftwareCompany.Com about Bob's new job.

Bob is served the next day with a temporary restraining order, which informs him that ComputerSoftwareCompany.Com plans to enforce the noncompetition agreement he had signed. Bob is outraged! Why should he be prevented from getting a new job in all of Louisiana when he was fired after receiving little or no training? Furthermore, why should he be restricted from working for two entire years? Bob decides to fight this in court, sure that no reasonable court would enforce such an agreement against him.

Bob is greatly surprised when the court enforces the agreement against him. While the court limits the agreement to East Baton Rouge, Ascension, Saint Charles, Saint James, and Orleans Parishes, this is of little consolation to Bob, because SoftwareDeveloper.Com is located in and does business in the same parishes.

Although the result reached by the court seems harsh, it is the result that would most likely be reached by some Louisiana courts today. Louisiana Revised Statutes 23:921² Page 607 governs noncompetition agreements, and courts simply require mechanical adherence to the statute in order to effect an enforceable agreement.

Louisiana courts would not always have reached the same conclusion. Noncompetition agreements have been prohibited by statute since 1934, and such agreements have been deemed violations of public policy.³ Despite this traditional view of such agreements, the Louisiana legislature was persuaded in 1962, and again in 1989, to amend the statutory provision to allow noncompetition agreements in limited circumstances.⁴ The amendments undoubtedly resulted from market pressures and successful lobbying by businesses, as Louisiana employers were disadvantaged because they were unable to protect their competitive advantages when employees chose to terminate employment and began working in direct competition with their former employers. It was unfair for employees or their new employers to benefit at the expense of former employers. The legislature therefore attempted to alleviate this problem by providing exceptions to the general prohibition of noncompetition agreements.⁵

Unfortunately, the courts have applied the statute inconsistently since its adoption. Despite drastic inconsistencies, the Louisiana Supreme Court has denied writs in almost every case. Finally, in the 1997 case of AMCOM v. Battson,⁶ the Louisiana Supreme Court arrived at the opportunity to clarify at least one issue-whether noncompetition agreements may be reformed. However, the supreme court simply overruled the appellate court's decision and reinstated the trial court's opinion, which had reformed an overly broad agreement. Because no reasons were given, the circuits are again split as to the implications of this decision.

Noncompetition agreements theoretically are invaluable to many types of employers, such as those who provide customer lists and training to their employees. As a result, many employers include them in their employment contracts and, of course, expect them to be enforceable. However, because the courts are inconsistent in their enforcement of such agreements, the employer cannot know whether the agreement will provide any benefit. Moreover, employees who sign noncompetition agreements are sometimes unnecessarily restricted in their post-termination activities.

This article will examine the conflicting policies of noncompetition agreements, the inconsistent manner in which Louisiana courts have treated them, the problems which AMCOM v. Battson has created and its implications. The article compares Louisiana's statute and its application to the statutes of Florida and Alabama, the two statutes upon which the legislature based Louisiana Revised Statutes 23:921. This Page 608 article considers whether noncompetition agreements are in fact necessary to protect employers. Finally, this article offers some solutions to the problems that Louisiana faces with respect to noncompetition agreements.

II Why Noncompetition Agreements Are Generally Disfavored

Although the current trend in Louisiana law is to enforce noncompetition agreements against employees, such agreements were not always favored. For example, prior to 1962 any agreement in which an employee agreed not to compete with his employer after the employment relationship was terminated was unenforceable.⁷ When the Louisiana legislature amended the statute in 1962 to allow...