Louisiana is not a fan of non-competes. Any employer who has employees in Louisiana is likely aware of that (or should be). Louisiana statutory code says so; case law says so; and now the Fifth Circuit has chimed in to add a little more food for thought on the subject.
In its recent unpublished decision of Rouses Enterprises, L.L.C. v. Clapp, 2022 WL 686332 (5th Cir. Mar. 8, 2022), the Fifth Circuit upheld the Eastern District of Louisiana’s decision that a non-compete was unenforceable against Rouses’ former Vice President of Center Store Merchandising, James B. Clapp II, because, when Clapp signed the non-compete agreement, he was not a Rouses employee, but merely an applicant who was later offered and accepted a job.
Many states—including Louisiana—will allow an employer to satisfy the consideration aspect of a non-compete agreement by requiring that an employee sign a non-compete agreement as a condition of employment; i.e., if you would like a job, you need to sign this agreement. Indeed, Louisiana’s statutory code expressly permits:
Any person … may agree with his employer to refrain from carrying on or engaging in a business similar to that 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.
La. Rev. Stat. Ann. § 23:921(C). But the Fifth Circuit, in anticipating how Louisiana would treat the issue, does not think that eventually offering the individual employment is sufficient, not where the agreement is signed before that offer is made or employment begun.
In Rouses’ case, they had not offered Clapp employment prior to presenting him with the non-compete agreement. Rather, after conducting an initial phone interview in December 2017, they sent Clapp a non-compete agreement, which Clapp signed on December 28, 2017. 2022 WL 686332, *1. However, Rouses did not offer Clapp employment until January 23, 2018, and Clapp did not begin his employment until February 12, 2018. Id. This was enough for the Fifth Circuit to hold that Rouses failed to demonstrate that its non-compete fell under one of the enumerated exceptions to the Louisiana Code.
Interestingly, though not a precedential opinion and a decision where the Fifth Circuit anticipated how the Louisiana Supreme Court would rule, the Court signaled that, where no actual employment relationship existed, a non-compete would not be enforceable. In other words, based on the language in Rouses, it appears that the Fifth Circuit (or at least this particular panel) would require an actual employment relationship to exist. In support of that position, the Fifth Circuit cited two cases from the 1970s for the proposition that the statute only covered an employer-employee relationship and would not be expanded, and a 2022 decision in which a Louisiana state appellate court held that an agreement signed after employment terminated was unenforceable and invalid. This potentially creates future issues for courts considering the timing-of-execution question, as this decision leaves unclear the answer to the question of what happens if the employer makes a job offer and presents the non-compete with the job offer.
Practically speaking, what this may require is employers to be more mindful about their non-compete programs and how they roll out such paperwork. Indeed, based on the language of this ruling, it may not be sufficient to make an offer, which includes signing a non-compete agreement as a prerequisite to obtaining the job. Rather, employers may need to consider whether they make the offer, foreshadow the need to sign certain paperwork, including a non-compete agreement, and only during the onboarding process, after they are officially an employee, provide them the non-compete to sign. Nonetheless, this will be an area that we will continue to monitor in case either the Louisiana Supreme Court or the Fifth Circuit further weighs in on this topic.