Recent Case Finds Tolling Provision In Non-Compete Clause Is Unenforceable

By Marc Whitfield
Partner, Taylor Porter
​marc.whitfield@taylorporter.com

From time to time, I am asked to review a non-compete agreement or clause that includes what is generally known as a tolling provision. A tolling provision in a non-compete clause generally provides that the applicable term of the non-compete clause is automatically extended during any period of litigation seeking enforcement of the non-compete. The theory generally offered in support of such tolling provisions is that the employee, or other restricted party, is not in compliance with the non-compete during litigation so the non-compete period should be extended to ensure that the employee, or other restricted person, is required to comply for the full period of time established in the non-compete clause. Because a tolling provision generally extends the two year maximum limitation on non-compete clauses, I have always operated under the general assumption that a tolling provision is invalid and legally unenforceable under Louisiana law, but many employers value and favor such tolling provisions. However, a recent case supports the view that such tolling provisions are invalid and legally unenforceable under Louisiana law.

In Delta Fuel Co., Inc. v. Abbott, 18-CV-01334, 2021 WL 259747, at *5 (W.D. La. Jan. 25, 2021), the court was asked to enforce a non-compete clause that included a tolling provision that provided:

“… in the event [employee] violates any provision of this Agreement, the post-employment period of the restrictive covenants … shall begin to run from the latter of (i) the date on which such violation ceases or (ii) the date of any final, non-appealable judgment, settlement, or other resolution of any judicial proceeding or legal action, claim or controversy enforcing or upholding any such provision of this Agreement.”

If this clause is enforceable, the non-compete term could effectively be extended beyond the two year maximum permitted under La. R.S. §23:921. In its ruling, the court instead found that such tolling provisions are invalid and unenforceable under Louisiana law, holding that the non-compete restriction “is unenforceable to the extent that it seeks to extend the non-compete and non-solicitation provisions of the agreement beyond the two-year period from” the employee’s termination of employment. This finding is also consistent Texas cases that have found such tolling provisions to be unenforceable under Texas law.[1] 

In summary, any non-compete clause that includes a tolling provision that effectively allows the non-compete term to be tolled and extended during the period of any non-compliance is likely unenforceable under Louisiana law, if the effect is to extend the non-compete term beyond the two year maximum permissible under La. R.S. §23:921.   

This finding obviously benefits employees, and any employers that currently include such tolling provisions in their non-compete clauses should review these clauses with their legal counsel and consider revising or removing any such tolling provisions.

If you have any questions concerning non-compete restrictions, you can email Mr. Whitfield at
marc.whitfield@taylorporter.com to schedule a call or meeting.

To review prior non-compete articles written by Mr. Whitfield, please review Taylor Porter’s law Blog at: 
http://www.taylorporter.com/blog/cat/17/trademark-law

[1] See; IKON Office Sols., Inc. v. Furnish, No. SA-06-CA-434-FB, 2007 WL 9702416, at *9 (W.D. Tex. Oct. 31, 2007) (the tolling provision “creates an unreasonable restraint because it creates an indefinite period in which Furnish’s actions are restrained and it creates an indefinite time at which this restraint will begin. ... A clause that is based in such indefiniteness cannot be upheld as a reasonable restraint on trade.”)

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