Devil inside the Deal: An Examination of Louisiana Noncompete Agreements in Business Acquisitions

In a noncompete agreement, one party agrees with another to refrain from engaging in a particular line of business or from soliciting customers of another person. Buyers in business acquisitions seek these covenants because sellers, when not restricted by an enforceable noncompete agreement, can destroy the value of the business sold through their own competitive acts. Over the past twenty years, Louisiana courts have inappropriately applied the “strong public policy” requiring strict construction of noncompete agreements in the employment context to all noncompete agreements, including those executed ancillary to the sale of a business. The application of this policy is inappropriate, because sellers have equal bargaining power and often receive a substantial amount of consideration in the form of a purchase price. This is often not the case for an ordinary employee who executes a noncompete agreement as a condition of his or her employment. The Louisiana courts' hostility toward noncompete agreements in all circumstances places doubt in the minds of potential buyers and has a chilling effect on deals in this state. Therefore, legislative reform is once again needed in this area of the law. This Article chronicles the courts' misapplication of the strong public policy requiring strict construction of noncompetes in the employment context and argues that the neutral interpretive provisions of the Civil Code's articles on Conventional Obligations are more appropriate for noncompetes ancillary to business acquisitions.