Need to Know: Amendment to Louisiana Non-Compete Statute Took Effect on August 1, 2020
Louisiana has long had in its statutes one of the nation’s most distinctive non-compete laws, and that statute has just been amended in a subtle but important way. LA. R.S. 23:921 essentially provides that every agreement that restrains someone from engaging in any profession, trade or business is null and void, unless the prohibition against competing meets one of the specific exceptions provided in the statute.
Within the context of employer-employee relationships, Louisiana law permits non-compete agreements where the agreement restricts the employee “from carrying on or engaging in a business similar to that of the employer” and/or “from soliciting customers of the employer,” but only:
within an expressly identified territory consisting of a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein, and
not exceeding a period of two years from termination of employment.
LA. R.S. 23:921 sets similar rules for non-competes entered into by corporations and their shareholders, partnerships and their partners, and limited liability companies (LLCs) and their members.
Prior to the amendments of 2020, under LA. R.S. 23:921, a corporation, partnership or LLC only could enter an agreement to stop a shareholder, partner, or member from owning or being an interest holder in a competing business (provided it complied with the above two territorial and durational requirements). These entities could not enter an agreement to prevent such individuals from merely being employed with a competing business.
Under the 2020 amendments to LA. R.S. 23:921, however, a corporation, partnership or LLC may enter into agreements with their shareholders, partners and LLC members that restrict them from taking equity stakes in a competing business (as shareholders, partners or members) and/or merely become employees with the competing business.
The amendments to LA. R.S. 23:921 thus expand rather than cut back on the ability of entities to enter into restrictive covenants, and that runs counter to the overall national trend of states cutting back on such provisions. Accordingly, for certain entities (corporations, partnerships and LLCs) that have restrictive covenant agreements with certain persons resident in Louisiana (shareholders, partners, and LLC members), it is time to consider reviewing and perhaps amending those agreements to extend the coverage of the restrictions to those persons who may merely become employees of established competitors.