The federal district for the Western District of Louisiana added to the growing list of decisions that have applied Louisiana’s non-compete statute to invalidate choice-of-law or forum-selection clauses. These decisions have struck down clauses that, on their faces, would have required Louisiana employees of non-Louisiana employers to litigate under the law or in the courts of some other state. The decisions should also serve as a reminder that employers should not take a one-size-fits-all approach when drafting non-competes for employees residing in multiple states.
The Ruling. Louisiana’s non-compete statute, La. R.S. 23:921, invalidates a choice-of-law or a forum-selection clause in an employment agreement unless the employee agrees to the clause or expressly ratifies it after the dispute arises. After leaving their employment, employees generally do not ratify these clauses made at the start of the employment relationship — unless of course the chosen law or forum favors the employee. This scenario played out in Bell v. L. H. Brown Company, Inc., No. 14-2772 (W.D. La. 2015), where a Louisiana employee was able to avoid complying with his non-compete.
Charles Bell was a recently-departed employee who sued his former employer in Louisiana state court, asking for a declaration that the non-compete agreement was invalid under Louisiana law. After his former employer removed the case to federal court, Mr. Bell raised these same arguments. The pivotal question for the court to decide was whether Louisiana law or Tennessee law applied — since the non-compete agreement included a Tennessee choice-of-law clause.
The facts did not present an uncommon scenario: the employer was located in one state while Mr. Bell resided in another. The employer’s principal place of business was in Memphis, Tennessee, and Mr. Bell signed the non-compete agreement, knowing that it called for Tennessee law to govern his relationship with the company. The Tennessee employer argued that the non-compete complied with Tennessee law and emphasized that the parties formed the employment relationship in Memphis when Mr. Bell personally delivered the agreement with his signature to the company’s Memphis headquarters (where the employer then signed it); Mr. Bell had been the only company employee in Louisiana; Mr. Bell received his company vehicle, telephone, and computer from the Memphis office; and Mr. Bell attended work-related meetings in Tennessee.
Notwithstanding the many contacts with Tennessee, the court refused to enforce the parties’ choice of Tennessee law. As a court sitting in Louisiana, the federal judge applied Louisiana’s choice-of-law rules. The court found that Louisiana’s public policy that Louisiana law and Louisiana courts must determine the validity of non-competes entered into by Louisiana employees was so strong that the policy outweighed the other considerations in the choice-of-law analysis.
The court in Bell v. L. H. Brown went on to invalidate the non-compete agreement. Louisiana law requires that non-compete agreements limit their geographical scope to “a specified parish or parishes [i.e., county or counties], or municipality or municipalities, or parts thereof.” The non-compete agreement did not contain the requisite geographic restriction which, according to the employer, Tennessee law would not have imposed.
The Take–Aways. Employers must be aware of each potential state law that could affect their non-competes with employees working or living in multiple states. This case shows that a Louisiana court will usually apply Louisiana’s non-compete laws to Louisiana employees — even if the non-compete calls for another state’s law and even if the non-compete (drafted to comply with the law that the parties selected in their agreement) would be invalid under Louisiana law. This case also teaches that employers should consider quickly filing suit in their preferred forum if they question whether their non-compete complies with the employee’s home-state laws. Conversely, an employee who expects his or her former employer to try to enforce a non-compete agreement should consider prompt legal action as well in his or her own state.