In a strengthening of company contractual rights, the Louisiana Legislature recently expanded its state non-compete statute by permitting a corporation, partnership, or limited liability company to enter into agreements with their shareholders, partners, or members, respectively, that prevent them from becoming employees of a competing company under certain circumstances.
In Louisiana, an employment agreement may restrict an employee from engaging in a business similar to that of the employer so long as (1) the non-compete agreement designates specific parishes, municipalities, and/or parts thereof within which the restriction applies, (2) the employer conducts a similar business therein, and (3) the duration of the restriction does not exceed two years. Further, an agreement between a corporation, partnership, or limited liability company and their shareholders, partners, or members, respectively, may prevent the shareholders, partners or members from owning a portion of a competing business so long as the agreement satisfies the same three aforementioned requirements.
Prior to the recent amendment, which took effect on August 1, 2020, Louisiana's statute did not explicitly permit agreements restricting shareholders, partners, or members from becoming employees of competing companies. Significantly, the recent amendment now permits agreements between a corporation, partnership, or limited liability company and their shareholders, partners or members, respectively, that prevent them from becoming employees of a competing company. In passing the amendment, the Louisiana Legislature has provided companies with an additional protection to be added into their non-compete agreements.
Specifically, Louisiana Revised Statute Section 23:921 now provides as follows:
A.(1) Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void. However, every contract or agreement, or provision thereof, which meets the exceptions as provided in this Section, shall be enforceable.
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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.
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D. For the purposes of Subsections B and C of this Section, a person who becomes employed by a competing business, regardless of whether or not that person is an owner or equity interest holder of that competing business, may be deemed to be carrying on or engaging in a business similar to that of the party having a contractual right to prevent that person from competing.
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[J, K, and L] A corporation[, partnership, or limited liability company] and the individual shareholders[, partners, or members] of such corporation[, partnership, or limited liability company] may agree that such shareholders[, partners, or members] will refrain from carrying on or engaging in a business similar to that of the corporation[, partnership, or limited liability company] and from soliciting customers of the corporation[, partnership, or limited liability company] within a specified parish or parishes, municipality or municipalities, or parts thereof, for as long as the corporation[, partnership, or limited liability company] carries on a similar business therein, not to exceed a period of two years from the date such shareholder[, partner, or member] ceases to be a shareholder[, partner, or member] of the corporation[, partnership, or limited liability company] …"
Key Takeaways
- Beginning August 1, 2020, Louisiana's recently revised non-compete law permits a corporation, partnership, or limited liability company to enter into agreements with their shareholders, partners, and members, respectively, that prevent them from becoming employees of a competing company under certain conditions.
- This type of agreement is allowable in addition to agreements preventing shareholders, partners, and members from owning portions of a competing business under certain conditions.
Originally published by Seyfarth Shaw, August 2020
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