Defining Business in Louisiana Non-Competition Agreements is Essential, Appeals Court Holds
A Louisiana appeals court in New Orleans recently overturned a trial court’s refusal to enforce a non-competition agreement. The appellate court’s decision instructs employers on the need to define the scope of their businesses for an enforceable agreement. Environmental Safety & Health Consulting Services, Inc. v. Fowler, 2019-CA-813 (La. 4 Cir. 3/11/20).
The Dispute. Environmental Safety & Health Consulting Services, Inc. (ESH) performs oil and hazardous materials spill containment and cleaning services throughout Louisiana. Two ESH employees had previously signed non-competition agreements, but in April 2019, their employment with ESH had ended and both began working for ESH’s competitor, Clean Harbors. Around the same time, ESH learned that it lost a contract to Clean Harbors, and ESH believed that its two former employees were involved in that work moving from ESH to Clean Harbors. In late April 2019, ESH filed suit and, among other things, sought an injunction to enforce the terms of the employees’ non-competition agreements.
Trial Court Denies Injunction Motion. The trial court heard evidence during the preliminary injunction hearing held on May 9, 2019, and took the matter under advisement. On May 17, 2019, the trial court rendered its judgment, denying the requested injunction. The trial court acknowledged that the evidence established that the non-competition was otherwise enforceable, but found that ESH had not adequately proven that it had suffered irreparable harm. Even though Louisiana’s statute removes the requirement for proving such harm when there is evidence that the agreement has been breached, the trial court found that ESH was required to and failed to sufficiently do so.
Louisiana Fourth Circuit Overturns. On appeal, the trial court’s decision was overturned. The court ultimately found that Louisiana’s non-competition statute does not require a party to prove irreparable harm when the evidence shows that a valid non-competition agreement has been breached. But another aspect of the opinion is worth highlighting. When the examining whether the non-competition agreements were valid, the appellate court stated that, “to be enforceable, a noncompetition agreement must prohibit competition between employee and employer, including defining what the business of the employer is that the employee is prohibited from competing within.” This is important because Louisiana’s non-competition statute does not require an employer to “define” its business. In this case, the court ultimately rejected the employees’ arguments that the definition of ESH’s “business” was overly broad, finding that “the definition of the business contained in the Agreements was not so broad and vague as to render Mr. Jordan and Mr. Fowler from being able to discern what kind of business the Agreements considered competitive.”
Take Away. It’s always been good practice for Louisiana employers to use contractual language that adequately and fairly defines the scope of their businesses. But this decision suggests that it could be an actual requirement for an enforceable non-competition agreement. Louisiana employers should revisit their agreements to make sure their agreements define their “business” to protect their actual business interests, but not so broadly to prohibit employees from working for employers who are not competitors.