3.20.22 – National Law Review
Advanced Medical Rehab, L.L.C. (AMR), is a marketing company that represents several medical clinics in Louisiana and markets the medical services of those clinics to personal injury law firms.
When AMR learned that Shelby Manton, who formerly had performed marketing services for AMR, had joined another company that allegedly competed with AMR’s business, AMR filed suit to enforce Manton’s noncompetition agreement. AMR sought a temporary restraining order against Manton, who had joined LA Health Solutions, a licensed healthcare provider network that provides medical treatment to patients.
Manton’s contract with AMR contained a noncompetition clause that the trial court in Advanced Medical Rehab, L.L.C. v. Manton held to be “overbroad, overreaching and in violation of public policy” and in violation of each of the three requirements of Louisiana’s noncompetition statute, La. R.S. 23:291: “(1) a two-year maximum duration, (2) a list of the areas in which the former employee is restrained,” and (3) that the former employee works for a business that competes with the business of the former employer. AMR timely appealed, seeking review of the trial court’s judgments.
The Louisiana Court of Appeal, Fifth Circuit, affirmed the trial court’s rulings regarding the noncompete provision. First, the court held that the noncompetition agreement, which prohibited Manton from being an “ … employee … with any business (other than Advanced, or an affiliate) engaged to any extent in the business of Advanced, which includes but is not limited to, the marketing of medical services for chiropractic clinics and physicians …” was overbroad in the scope of the business competition restriction. (Emphasis in original.) Under Louisiana law, noncompetition agreements may limit competition only as to business similar to that of the former employer. The AMR provision, the court found, violated La. R.S. 23:921 as it prohibited Manton from employment in the practice of marketing for any business, not merely marketing medical services for medical clinics.
Second, the geographic scope of the noncompetition agreement violated the strict demands of La. R.S. 23:921, which requires the employer to identify the parishes or municipalities to which the agreement applies. Louisiana courts have construed this provision to mean that a worker must be able to determine in advance the parishes or municipalities in which he or she is giving up the right to work when signing an agreement. AMR’s noncompetition agreement identified twelve named parishes.
The agreement also included the following provision: “[T]his non-compete agreement will apply in any parish in which Advanced has a contract and/or has an existing marketing relationship with a clinic to provide marketing services during the term of this contract or any relationship thereafter.” AMR cited Causin, L.L.C., d/b/a/ Bayou Safety and Supply v. Pace Safety Consultants, LLC, a 2019 decision in which a Louisiana appellate court upheld a noncompetition agreement that included a provision allowing the employer to amend the geographic scope with the employee being given the option to dispute the amendment. (We previously discussed Causin and its employer-friendly ruling.)
In Manton, the court found that “no such option existed,” as AMR claimed the “right to unilaterally claim additional parishes” without giving Manton any opportunity to contest the scope. AMR’s provision, the court held, restricted Manton’s ability to conduct business in violation of La. R.S. 23:921.
Third, the court held the duration of the noncompetition agreement violated La. R.S. 23:921, which expressly limits a noncompetition provision to two years “from termination of employment.” AMR’s agreement provided a duration “for a period of two years after the termination of this contract and/or the relationship between the parties.” This language, the court held, was “overbroad” given the uncertainty of “when the contract and/or relationship between the parties would end.”
The court also determined that the invalid provisions could not be severed from the agreement as the severability clause “contemplate[d] invalidation based only on the grounds of an unreasonable time period or geographic scope.” It was silent on how the offending language should be severed for other grounds, as had been found in this case. The court therefore would be required to “rewrit[e] a disfavored contract,” which it declined to do given the “narrowly drawn statutory exception.”
The court reversed the trial court’s ruling that deemed moot Manton’s motion to dissolve the temporary restraining order and for an award of attorney’s fees. Without addressing the merits, the court remanded the issue for a hearing, instructing that La. C.C.P. art. 3608 allows for attorneys’ fees “‘rendered in connection with the dissolution of a restraining order’” to be included in the damages for the wrongful issuance of a preliminary injunction. Because the Fifth Circuit held that the trial court erred in finding there was sufficient evidence that Manton engaged in similar services as AMR, the restraining order was “wrongfully obtained” by AMR. As a result, the award of attorneys’ fees was still at issue.
Louisiana courts require that noncompetition agreements strictly comply with R.S. 23:921. Under section 921, a noncompete agreement is unenforceable in Louisiana unless the agreement strictly complies with the elements of section 921. An enforceable noncompete agreement must give the employee advance notice (1) of the nature of the employer’s business to be protected by the agreement; (2) that the temporal scope will last no more than two years from the date of termination (or other date certain); and (3) of the parishes or municipalities in which competition will be prohibited.
The Manton decision illustrates that Louisiana courts will examine closely whether agreements conform to the strict requirements of La. R.S. 23:921. Though Causin expanded an employer’s ability to restrict the geographical scope of an agreement, Manton makes clear that that expansion must be accompanied by allowing the employee to dispute the expanded scope. Manton also demonstrates the reluctance of Louisiana courts when asked to sever invalid noncompete provisions, when doing so would require the court itself to rewrite a provision in a contract already disfavored in Louisiana.
The Manton decision may serve as an example of how Louisiana courts view noncompete agreements that do not adhere to the statutory requirements of La. R.S. 23:921. Enforcement of an invalid noncompetition agreement may subject the employer to both attorneys’ fees and liability under the Louisiana Unfair Trade Practices Act.© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved. National Law Review, Volume XII, Number 79