Case Law Trend: Enforceability of Non-Compete Agreements Requires Narrowed Focus

By Tom Easterly
Partner, Taylor Porter

Assuming other requirements are met, a non-compete agreement is enforceable where it narrowly and specifically defines the business or businesses in which the individual is prohibited from competing.Lafourche Speech & Language Services, Inc. v. Juckett, 94-1809 (La. App. 1st Cir. 3/3/95), 652 So. 2d 679, writ denied, 95-0850 (La. App. 1st Cir. 5/12/95), 654 So. 2d 351; Baton Rouge Computer Sales, Inc. v. Miller-Conrad, 99-1200 (La. App. 1st Cir. 5/23/2000), 767 So. 2d 763; Vartech Systems, Inc. v. Hayden, 05-2499 (La. App. 1st Cir. 12/20/06), 951 So. 2d 247; Moores Pump and Supply, Inc. v. Laneaux, 98-1049 (La. App. 3 Cir. 2/3/99), 727 So. 2d 695.

In the context of a limited liability company, a membership agreement or operating agreement may contain a non-competition provision. In that frequently used context, if the description is “similar to that of the limited liability company,” then it is enforceable. La. R.S. 23:921(L). Significantly, the applicable legal standard does not require that the business description match perfectly with the actual business; rather, it merely requires that it be similar. Id. See also Baton Rouge Computer Sales, Inc. v. Miller-Conrad, 1999-1200 (La. App. 1st Cir. 5/23/00); 767 So. 2d 763; and Class Action Claim Services, L.L.C. v. Clark, 04-591 (La. 5th Cir. 12/14/2004); 892 So.2d 595. The case law makes it clear, however, that the substantive scope of the business restriction must closely track the employer’s business or the business of the limited liability company for which the operating agreement applies.

According to the Louisiana First Circuit Court of Appeal, a noncompetition agreement prohibiting a physician from practicing in a sub-specialty field is enforceable. See Cardiovascular Institute of the South v. Abel, 2014-1268 (La. App. 1 Cir. 3/19/15); 2015 WL 1019500, at *1 (enforcing a non-compete against a physician and issuing a preliminary injunction prohibiting him from practicing medicine in the sub-specialty of cardiology). While the Cardiovascular Institute of the South v. Abel decision is an unreported decision, it is a well-reasoned opinion outlining that non-competition agreements are enforceable within the medical field. There is no statutory loophole or public policy get out of jail free card that might otherwise allow a physician to avoid the effects of a non-competition agreement that meets the statutory requirements. In other words, physicians are free to contract amongst themselves and self-impose restrictions on their ability to compete in the free market healthcare system.

One word of caution to medical and legal practitioners, though, is to remain narrowly focused. The lesson of Cardiovascular Institute of the South v. Abel is that the substantive scope of the restriction should be limited to a sub-specialty (A list of specialty and subspecialty medical certificates is published by the American Board of Medical Specialties). If a contract is drafted so that the restricted field is too broad – which is a common mistake – then it will not be enforceable.

A carefully and tightly worded non-competition provision focused on a well-recognized subspecialty fits within the spirit of the Louisiana First Circuit Court of Appeal’s decision in Cardiovascular Institute of the South v. Abel, supra. Practitioners should avoid the urge to use expansive language to modify the subspecialty. For example, restricting a physician from practicing in “the subspecialty of Gastroenterology” is not nearly as broad as “the subspecialty of Gastroenterology, as well as any and all related fields.” Likewise, while restricting a medical provider from practicing in “the subspecialty of Oncology” seems to pass scrutiny under Cardiovascular Institute of the South v. Abel, attempting to limit a provider from working in “any and all Oncology-related positions including but not limited to those related to Surgical Oncology” will likely pose problems. Point being, the phrases “any and all,” “related to,” and “including but not limited to” are purposefully used to de-limit and broaden a substantive scope. Those types of terms should be avoided in order to comply with Louisiana’s statutory scheme.

About Tom Easterly: Taylor Porter Partner Tom Easterly regularly advises local and national clients, including individuals, closely-held companies, and Fortune 500 companies, with simple and complex business litigation matters, as well as various commercial transactions and regulatory needs. Tom is experienced with a wide range of business transactions, including limited liability company transactions, asset purchase agreements, transportation agreements, master service agreements, non-competition agreements, secrecy and confidentiality agreements, donations, sales/assignments, forbearance agreements, participant agreements, shareholder agreements, exchanges and operating agreements. In 2017, Tom was selected among the “Forty Under 40” by Baton Rouge Business Report for both his professional accomplishments and contributions to the community. Tom has been recognized by Louisiana Super Lawyers as a “Rising Star” in Business Litigation for five consecutive years (2014-2018).