On April 23 the U.S. Federal Trade Commission (the “FTC”) voted to ban noncompete clauses, which are typically used to block employees from leaving to work for competitors in the same industry. The final rule adopted by the FTC adopts a different approach for senior executives than for other workers. For senior executives, existing noncompetes can remain in force. Existing noncompetes with workers other than senior executives are not enforceable after the rule’s effective date. The FTC’s final rule defines the term “senior executive” to refer to workers earning more than $151,164 who are in a “policy-making position.” The FTC estimates that approximately one in five American workers—or approximately 30 million workers—is subject to a noncompete.

Although the ban does not take effect until 120 days after the FTC’s new rule is published in the Federal Register, reaction has been swift. On April 24, the U.S. Chamber of Commerce and other business groups sued the FTC in Texas federal court, claiming the FTC does not have the authority to implement the rule, and the rule itself is too wide in scope. The business groups also claim that nullifying existing noncompetes is “impermissibly retroactive” because it voids previously agreed-upon contracts.

Briefly, in Louisiana noncompete agreements are disfavored. Louisiana law generally considers an agreement that restrains an employee from practicing a lawful profession, trade, or business null and void. However, a noncompete agreement in Louisiana may be enforceable if:

  • it prevents the employee from carrying on or engaging in a competing or similar business to that of the employer;
  • it is for a period of, at most, two years after the individual’s termination date;
  • it specifies the geographic scope by identifying, by name, the covered parishes and municipalities;
  • and the geographic scope is limited to areas where the employer conducts business.

The FTC rule, as drafted, would invalidate existing noncompete agreements in Louisiana for those not “senior executives” and prevent new noncompete agreements for those not “senior executives.”

Please contact Richard Traina if you would like additional information about this important development.

Filed under: Industry News
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