An employee’s termination date – that is, the date the employee quits or is fired – may be critical to determining when his non-competition obligations expire. Under Louisiana law, a non-competition agreement may not “exceed a period of two years from termination of employment.” La. R.S. 23:921(C).
This rule was recently applied by the Louisiana 4th Circuit Court of Appeal in Smith v. Commercial Flooring Gulf Coast, L.L.C., 2019-0502 (La. App. 4 Cir 10/09/19). In Smith, an employee at a flooring company quit to work for a local competitor as their Vice-President of Operations. After he sued his former employer for a declaration that his non-competition agreement was invalid, the former employer counter-sued, seeking damages and an order enjoining him from working at the competing flooring company. The trial court ruled in favor of the former employer and granted a preliminary injunction enjoining the employee from working for the competitor “for a period not to exceed two years from the date of the judgment.” On appeal, the Fourth Circuit generally affirmed the trial court’s ruling, except to modify its duration to run from the employee’s date of termination, not the judgment. The Court held:
[A] preliminary injunction that extends for up to two years from the date of judgment impermissibly extends the time period to restrict competition allowed by law that Mr. Smith [the employee] and Priority [the former employer] contracted for in the non-compete agreement. … Therefore, although we find no manifest error in the district court’s grant of the preliminary injunction, we do find the district court erred as a matter of law in extending the preliminary injunction for a period not to exceed two years from the date of judgment. Accordingly, we amend the district court’s judgment to limit the duration of the preliminary injunction to two years from December 15, 2017, Mr. Smith’s last employment date with Priority.
In other words, because the plaintiff was apparently an at-will employee, he could quit at any time (or be fired) and thereby start the clock on the two year non-competition period.
Practice Tip: In one strategy for maximizing the duration of a non-competition agreement – for example, for highly skilled employees or executives – an employer may strategically use term employment contracts. For example, an employment agreement may be drafted such that notice of termination of the employment agreement triggers a “transition period” before the employment relationship actually ends during which the employee may be entitled to some fraction of his or her regular pay. While the employer may have to pay the employee through such period, the non-competition obligation would be enforceable during such period and two years thereafter. Before executing such agreements, employers should weigh whether the additional payments would be worth extending the non-competition obligation by delaying the employee’s termination date.