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Law Pro
Law Pro, Attorney
Category: Business Law
Satisfied Customers: 24869
Experience:  20 years experience in business law - sole proprietor, partnership, and corporations
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How does a non-compete clause effect a non profit organization

Resolved Question:

How does a non-compete clause effect a non profit organization if the morganization is the one holding the clause?
Submitted: 7 years ago.
Category: Business Law
Expert:  Law Pro replied 7 years ago.
Please explain with a little more information what's going on here. Thanks!
Customer: replied 7 years ago.
I worked for a goverment non profit non- civil service conpany. I wish to work in the same field but I signed a non-compete clause at hire. Can the clause be used aganist me to keep me from working in the area?
Expert:  Law Pro replied 7 years ago.

Probably yes, if not to restrictive. Non-compete agreements are valid if they aren't overly prohibitive as to area or type of service/employment you can do.

 

What exactly does the non-compete clause state?

 

What type of work do you do?

 

 

Customer: replied 7 years ago.
The clause states that I can not work or conpete in the district 6 area for two years after termination. I am a code inspector and was registered as a third party inspector before working for the company. I would like to continue as a third party inspector.
Expert:  Law Pro replied 7 years ago.

How big is district 6?

 

Do you ant to work within district 6?

Customer: replied 7 years ago.
I live in District 6 it is made up of 5 parishes, center of Louisiana. Even if I do the inspections in District 6 the property owner still has to take out a permit with the company.
Expert:  Law Pro replied 7 years ago.

I hate to say it - but it would be reasonable to assume that the area restriction would be held not to overly broad and upheld as valid - I believe that a judge would uphold the non-compete clause. That the judge would place an injunction against you for servicing District 6 if you attempted to do such.

 

A non-compete clause or covenant not to compete (CNC), is a term used in contract law under which one party (usually an employee) agrees to not pursue a similar profession or trade in competition against another party (usually the employer). As a contract provision, a CNC is bound by traditional contract requirements including the consideration doctrine. The use of such clauses is premised on the possibility that upon their termination or resignation, an employee might begin working for a competitor or starting a business, and gain competitive advantage by abusing confidential information about their former employer's operations or trade secrets, or sensitive information such as customer/client lists, business practices, upcoming products, and marketing plans.

Conversely, a business might abuse a non-compete covenant to prevent an employee from working elsewhere at all. Most jurisdictions in which such contracts have been examined by the courts have deemed CNCs to be legally binding so long as the clause contains reasonable limitations as to the geographical area and time period in which an employee of a company may not compete. Courts have held that, as a matter of public policy, an individual cannot be barred from carrying out a trade in which s(he) has been trained except to the extent that is necessary to protect the employer.[citation needed]

 

Second, to enforce the CNC, a Plaintiff must show that it is not unduly harsh or oppressive in restricting the employee's ability to earn a living. In Virginia, a CNC is not unduly harsh or oppressive if balancing its function, geographic scope and duration the employee is not precluded from (1) working in a capacity not in competition with the employer within the restricted area or (2) providing similar services outside the restricted area. See Paramount, 380 S.E.2d at 925.

 

Here is the law as it specifically applies to Louisiana:

 

Before getting into the basics of the rules, let me point out some significant changes that have taken place in 2001 and in 2003. There was a major decision by the La Supreme Court in June 2001 in the case of SWAT 24 Shreveport Bossier vs Bond that held that non-compete agreements can only apply to prohibit an individual who is going into business for himself or for a former employee soliciting customers of his former employer. Thus, if an employee merely goes to work for a competitor business, then the non-compete agreement is NOT applicable. With this new development in mind, please read on.

During the 2003 Legislative session, Act 428 was introduced to have the net effect of overriding the Swat 24 case. The Governor signed the act into law on June 18, 2003 and it will become effective on August 15, 2003. Specifically, that act modifies the statute by adding a new Sub section H to Revised Statute 23:921 to provide as follows:

"H. For the purposes of Subsections B and C, a person who becomes employed by a competing business, regardless of whether or not that person is an owner or equity interest holder of that competing business, may be deemed to be carrying on or engaging in a business similar to that of the party having a contractual right to prvent that person from competing."

The above change passed the House by a vote of 90-13 passed the Senate by a vote of 33 to 1. Thus, the revision has tremendous support in the Legislature.


Another major change that the Legislature enacted in 1999 was to state that any non-compete agreement that provides for a choice of law or forum for the litigation of a non-compete agreement is null and void except where the decision for choice of law or forum is made "after the occurrence" of the incident which is the subject of the litigation. Many employers try to include terminology in their agreements that say that the laws of their home state are the laws to apply or that the matter can be filed in a courthouse in their home state. This provision in the Louisana law says that type of provision in void, thus forcing the employer to litigate the matter in a Louisiana court and to apply Louisiana law.

Non-compete agreements are covered by statute at LRS 23:921 which begins by stating that every contract that restrains a person form exercising a lawful profession, trade, or business is is null and void unless it complies with the statutory requirements. Thus, you should read on.

First, the agreement cannot extend for a period of more than two (2) years from the date of the sale of a business or the termination of an employee's employment. If it does, then the agreement is void and unenforceable even if the claim is brought within two years. The fact that the agreement provides for a longer time than is allowed by statute makes the agreement void on its face.

Second, that two year period can be cut shorter if the buyer of a business or the employer goes out of business during that time. The statute says that the agreement is valid so long as the buyer is deriving benefit from the goodwill of the business or so long as the employer carries on a like business in the area designated.

Third, the geographical area that the agreement is to apply to must set forth in the agreement to be "a specified parish or parishes, municipality or municipalities, or parts thereof". Thus, an area of "50 miles from the office" is not a valid designation of the geographical area.

Such an agreement may be entered into by partners in a partnership, by shareholders in a corporation, by employees of an employer, by an independent contractor, and by franchisors and franchisees.

From the standpoint of the employee, one case has held that this type of agreement cannot be used to prevent a person from going to work for a competitor when the new position involves no solicitation of the customers of the former employer.

The contract is considered to be an agreement "not to do" the acts specified in the agreement. The employer can request the court to issue an injunction to stop the employee from competing and he can sue for damages and profits that he lost.

Non-Compete agreements can be used to a benefit if they are carefully worded and fit the requirements of the statute. If not, they are considered to be null and void.

 

 

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