On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule, by a 3-2 vote, banning non-compete agreements nationwide. The rule, once effective, bans all non-compete agreements between employers and employees. Existing non-compete agreements for most employees will also no longer be enforceable. Only those existing agreements with senior executives, who are earning greater than $151,164 annually and who are in policy-making positions, are excluded from the ban. The final rule becomes effective 120 days after publication in the federal register.
The final rule is already facing significant legal challenges. Various business groups, including the U.S. Chamber of Commerce, filed suit in Texas Federal Court, arguing that the FTC lacks authority to issue rules regulating unfair competition. Various other legal challenges are expected, which may further delay or bar altogether the FTC’s enforcement of its final rule.
Even if the FTC’s final rule remains intact after intense judicial scrutiny, much of the Louisiana law on non-compete agreements will remain unaffected. Non-compete law in Louisiana is governed by a single statute, La. R.S. 23:921. This provision presumes non-compete agreements are unenforceable unless they meet one of eight narrowly construed exceptions. Each of the exceptions is based on relationships. They include the buyer and seller of the goodwill of a business, the employer/employee relationship, the franchisor/franchisee relationship, the computer employer/computer employee relationship, the corporation/shareholder relationship, the partner/partnership relationship in anticipation of dissolution, the partner/partnership relationship regardless of dissolution and the limited liability/member relationship.
Louisiana law already specifically prohibits a non-compete agreement between an automobile salesman and his employer that restrains him/her from selling automobiles. “Salesman” is defined in 23:921 as “any person with a salesman’s license issued by the Louisiana Motor Vehicle Commission or the Used Motor Vehicle and Parts Commission, other than a person who owns a proprietary or equity interest in a new or used car dealership in Louisiana.” The FTC’s ban obviously has no effect on that Louisiana provision. The FTC’s nationwide ban, however, does affect non-compete agreements with other employees of new car dealers, including technicians.
Even if the nationwide ban goes into effect after all legal challenges, six of Louisiana’s exceptions to the general prohibition on non-compete agreements (unrelated to employees) remain unaffected by the FTC’s final rule. Moreover, Louisiana law specifically allows a non-solicitation of customers agreement between employers and employees. Such a provision allows an ex-employee to continue working in the industry but prohibits the ex-employee from soliciting customers of their former employer. This provision also appears unaffected by the FTC’s final rule. Confidentiality provisions prohibiting employees from disclosing an employer’s confidential information also remain intact after the final rule.
The final rule may never become law. New car dealers should continue taking advantage of the law as it exists today until the viability of the FTC’s final rule is judicially determined, which may take years.
Jude C. Bursavich is a partner in the Baton Rouge, Louisiana, office of Breazeale, Sachse & Wilson LLP. He can be reached at (225) 381-8045 (O) and/or (225) 921-5552 (C). He has over 30 years of experience in representing businesses against former employees throughout Louisiana.
