Tough economy may bring challenges to Louisiana noncompete agreements

Employers and employees alike in the Baton Rouge area may want to consider taking the time now to seek a professional opinion as to the validity of their noncompete agreements. As one law professor points out, employment law cases involving noncompete agreements tend to increase during tough economic times as businesses have more to lose if agreements are not enforced and employees often stand to lose from enforcement of restrictions against future employment.

Historically, noncompete agreements have been a common element of business relationships in industries that rely heavily upon trade secrets, such as science and technology firms. In addition, noncompetes are common in industries that rely upon investments into the development of client relationships, such as financial firms, law firms and real estate companies. Recent times, though, show an increasing trend toward the use of noncompete agreements in sales and service businesses, ranging from medical practices to car dealerships to hair salons.

Louisiana imposes some of the nation’s most stringent restrictions against noncompete agreements. State law decrees that any contract that prevents a person from pursuing any type of lawful trade or business is void and legally unenforceable unless it meets certain exceptions set forth in the statute. The statute imposes express time limitations on noncompete agreements and state courts have strictly limited the geographic area and types of employment that may be restricted by a noncompete agreement.

Noncompete agreements play a legitimate and often necessary role in protecting investments and preserving the viability of independent businesses. That role becomes especially critical in tenuous economic times when every slice of market share counts. At the same time, economic challenges make restraints against pursuing new opportunities increasingly less palatable to employees and more likely to become the source of employment litigation.

Louisiana law allows employers and employees to negotiate contract terms that help protect business interests, but it also draws a fine line between acceptable protective covenants and limitations that amount to unlawful restrictions against free contract rights. A consultation with experienced employment law professionals can help both businesses and employees determine whether a noncompete agreement imposes reasonable terms or overreaches the acceptable limitations allowed by state law.

Source: Naples Daily News, “In tough economic times, non-compete agreements are ending up in Collier courts,” Aisling Swift, Dec. 1, 2012