Quick Hits
- In 2022, the U.S. Court of Appeals for the Fifth Circuit in Rouses Enterprises, L.L.C. v. Clapp, held that Louisiana law does not allow an employer to enforce a noncompete agreement signed by a prospective employee.
- In Gallagher & Co. v. Annison, the Louisiana Court of Appeal, First Circuit, distinguished Rouses and held that noncompete agreements signed by prospective employees are enforceable where the agreements contain an effective date that commences on or after the employees’ first day of work.
- Employers that ask prospective employees to sign noncompete agreements prior to the first day of work may want to ensure that their agreements specify an effective date that is on or after the employees’ first day of work.
Background and Ruling
In Gallagher, two former employees argued that because each signed her employment agreement prior to commencing employment, the noncompete provisions were inapplicable and unenforceable. When the employees signed the employment agreements, neither was employed by Gallagher. However, the employment agreements each stated that the parties agreed that the effective date of the agreement would be the employees’ first date of employment.
Louisiana’s noncompete law provides that “[a]ny person … who is employed as an agent, servant, or employee may agree with his employer” to restrictive employment covenants. Thus, the Louisiana First Circuit concurred with the federal Fifth Circuit’s opinion in Rouses Enterprises, L.L.C. v. Clapp, which held that where a former employee signed an employment agreement nearly a month before accepting the employer’s offer of employment, the noncompete agreement was unenforceable.
But the Louisiana First Circuit found that the Rouses opinion was distinguishable for several reasons. First, the employees at issue in Gallagher signed their agreements after they had accepted Gallagher’s offer of employment; in contrast, the employee in Rouses signed the noncompete agreement nearly a month before accepting the offer of employment. Next, the agreement at issue in Rouses did not include an express effective date on or after the employee began his employment, but the agreement in Gallagher did. Finally, the Gallagher employees expressly agreed that the effective date of their employment agreements was the date each commenced her respective employment. Therefore, on the effective date, an employer-employee relationship had been established.
Key Takeaways
Louisiana has a well-established hostility to noncompete agreements and the courts require agreements to strictly adhere to the statutory language. Louisiana’s courts scrutinize agreements very closely and often apply a “strict construction” filter. The Gallagher opinion may be at odds with the case law by applying customary principles of contract interpretation to an otherwise disfavored agreement.
Employers that use noncompete agreements in Louisiana may want to ensure that their agreements contain an effective date that is on or after the date the employee commences work. Even safer: employers may want to wait until someone is actually employed to sign the agreement.
Ogletree Deakins’ New Orleans office will continue to monitor developments regarding interpretations of Louisiana’s law on restrictive covenants and will provide updates on the Louisiana and Unfair Competition and Trade Secrets blogs.
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