Louisiana Court Finds Nonsolicitation/Noncompetition Agreement Is Enforceable
When Jay Baker, the vice president of Causin, L.L.C., quit to create a competing business, Causin sued to enforce Baker’s nonsolicitation/noncompetition agreement. Baker defended the claim in part by arguing the agreement’s use of a flexible addendum to list numerous parishes/counties did not satisfy the requirements of Louisiana’s noncompetition statute (La. R.S. 23:921), the inclusion of Causin’s “subsidiaries” and “affiliates” rendered the agreement overbroad, and the severability clause was ineffective. The Louisiana Fourth Circuit Court of Appeal rejected Baker’s arguments and upheld the agreement in Causin, L.L.C., d/b/a/ Bayou Safety and Supply v. Pace Safety Consultants, LLC.
The court recognized the statute’s directive that “every contract or agreement, or provision thereof, which meets the exceptions as provided in this Section, shall be enforceable” (La. R.S. 23:921(A)). The court found the agreement was a unilateral agreement by Baker not to compete, which satisfied the requirements of an enforceable nonsolicitation/noncompetition agreement: “(1) a two-year maximum duration, (2) a list of the areas in which the former employee is restrained, and (3) competition between the former employee and employer.”
Extensive, Flexible Restricted Area Was Compliant
The court held an addendum listing restricted parishes and counties satisfied the requirements of the statute. The extensive number of listed parishes (“most of the parishes in Louisiana”) and the inclusion of some Mississippi counties did not invalidate the agreement. The size of the restricted area “does not render the restriction overly broad.” The following language in the agreement authorized future changes in the restricted area’s scope:
Employee recognizes that from time to time, the Company’s business may expand to other parishes within Louisiana and/or other counties or municipalities in other states and Employee agrees that Company may amend Exhibit “A” and append it to this agreement with the same force and effect as the original Exhibit “A.” Company will provide Employee with any and all amendments. Employee and the Employer acknowledge and agree that the Company does business in all of the parishes contained in Exhibit “A.” Employee agrees that if the Company provides him with an amendment to Exhibit “A” that it will represent as fact that the Company does business in all of the geographical areas identified in such an exhibit unless the Employee provides the Company with written notice disputing that fact within seven days of his receipt of the amendment.
The court stated the naming of the parishes/counties, where Causin does business, together with an avenue for Baker to contest any expansion, all operated to satisfy the requirements of the statute.
“Subsidiaries, Affiliates” Disregarded Without Using Severability Clause
The agreement included subsidiaries and affiliates in the description of the parties, which Baker argued rendered the agreement unenforceable due to overbreadth and ambiguity. In the agreement, Baker had agreed to the nonsolicitation/noncompetition provisions “[a]s a condition of my employment with Causin LLC, Bayou Supply & Safety, its subsidiaries, affiliates, successors, or assigns (together “the Company”).” The agreement did not name any of the subsidiaries or affiliates.
Although the lower court granted Baker’s exception seeking joinder of other companies having some of the same owners/members as Causin, Causin argued those entities were not subsidiaries or affiliates; in any event, the lower court apparently applied the severability clause to strike those terms. The Fourth Circuit amended the lower court’s ruling by striking the terms “subsidiaries, affiliates” under general contract law, because they were “merely an accessory clause . . . and the reference is not needed for the existence of the agreement.” In so holding, the court found the agreement “specifically described all of the types of business in which Causin was engaged, and set forth the parishes and counties in which Causin did business. As well, it clearly set forth that Causin was the employer and that Mr. Baker was the employee.”
Because the court relied upon the general contract law principal concerning accessory clauses, it did not address Baker’s argument that the severability clause should not have been used or should have been construed against Causin because it was ambiguous.
Although Louisiana courts are often very hostile to restrictive covenants, the Causin court followed the statute in a common sense way to affirm enforcement of the agreement. Perhaps the unspoken premise of the decision was that Baker, as a vice president, was a sophisticated party who should have known the restrictive obligations he incurred in entering into this agreement. The court explicitly approved the inclusion of protected areas outside of Louisiana. Causin’s approval of changing the protected areas through an employer’s unilateral use of an addendum is a practical tool for business interests facing changing market conditions. The court further reaffirmed the general applicability of contract law principles to these types of agreements. Taking all of these rulings together, this was a very business friendly decision.