Orkin Exterminating Co. v. Foti

• Decision Date: 28 October 1974
• Docket Number: No. 54475,54475
• Citation: 302 So.2d 593
• Parties: ORKIN EXTERMINATING COMPANY, Plaintiff-Appellant-Relator, v. James T. FOTI, Defendant-Appellee-Respondent.
• Court: Louisiana Supreme Court

Page 593

302 So.2d 593

ORKIN EXTERMINATING COMPANY, Plaintiff-Appellant-Relator, v. James T. FOTI, Defendant-Appellee-Respondent.

No. 54475.

Supreme Court of Louisiana.

Oct. 28, 1974.

James T. Guglielmo, Edward B. Dubuisson, Dubuisson, Brinkhaus, Guglielmo & Dauzat, Opelousas, for plaintiff-applicant.

Earl B. Taylor, Taylor & Trosclair, Opelousas, for defendant-respondent.

TATE, Justice.

Orkin, the employer, sues its former employee Foti to enjoin him for working for two years in the pest control field in approximately the western half of Louisiana. The cause of action is based upon a clause in the employment contract by which Foti had agreed not to compete for two years in such area after his employment with Orkin was terminated. The employer complains of the grant of only a limited injunction¹, affirmed by the court of appeal, 287 So.2d 569 (La.App.3d Cir. 1973).

We granted certiorari, 292 So.2d 241 (La.1974), in order to resolve a conflict in the intermediate court decisions interpreting the legality of agreements exacted by employers from their employees not to compete with them after the termination of an employee relationship.

1.

More specifically at issue is the application of La.R.S. 23:921 as amended in 1962.

This statute as originally enacted in 1934 and as incorporated into the 1950 Revised Statutes provides: 'No employer shall require or direct any employee to enter into any contract whereby the employee agrees not to engage in any competing business for himself, or as the employee of another, upon the termination of his contract of employment with such employer, and all such contracts, or provisions thereof containing such agreement shall be null and unenforceable in any court'.

The statute was amended by Act 104 of 1962 to add as a proviso a limited exception to this stringent blanket prohibition of non-competition agreements: 'where the employer incurs an expense in the training of an employee or incurs an expense in the advertisement of the business that the employer is engaged in', then a non-competition agreement was permitted that, at the termination of employment, the 'employee will not enter into the same business that employer is engaged over the same route or in the same territory for a period of two years.'²

The conflict in the intermediate courts developed as to what extent the proviso had modified the original basic policy disfavoring non-competition agreements. See Comment, Agreements Not to Compete, 33 La.L.Rev. 94, 103--06 (1972).

One line of decisions holds that, in view of the basic policy of the statute to which the 1962 amendment was a proviso, the terms of the amendment imported sums not usually or customarily expended in the normal course of employment--that the amendment contemplated validating a non- competition agreement only where substantial funds were spent in special training or in special advertisement of the employee himself (rather than generally of the business).

The other line of cases holds that any expense incurred in training an employee, even normal supervisory assistance in breaking him in, and any expense incurred in advertising the employee's connection with the business, however nominal, validated an otherwise-prohibited non-competition agreement.

The leading case in the first line of decisions is National Motor Club of La., Inc. v. Conque, 173 So.2d 238 (La.App.3d Cir. 1965), certiorari denied, 247 La. 875, 175 So.2d 110 (1965). Other decisions of similar import are: Weight Watchers of Louisiana, Inc. v. Ryals, 289 So.2d 531 (La.App.1st Cir. 1973), certiorari granted, 292 So.2d 242 (La.1974) (argued at same time as present case and decided this date, La.App., 302 So.2d 598); Peltier v. Hebert, 245 So.2d 511 (La.App.3d Cir. 1971).

The leading case in the latter line of decisions is Aetna Finance Co. v. Adams, 170 So.2d 740 (La.App.1st Cir. 1964), certiorari denied, 247 La. 489, 172 So.2d 294 (1965). Other decisions of similar import are: National School Studios, Inc. v. Barrios, 236 So.2d 309 (La.App.4th Cir. 1970); World Wide Health Studios, Inc. v. Desmond, 222 So.2d 517 (La.App.2d Cir. 1969). Cf. also Louisiana Office Systems, Inc. v. Boudreaux, 298 So.2d 341 (La.App.3d Cir. 1974).

We resolve the conflict by approving National Motor Club v. Conque and its progeny. Aetna Finance Co. v. Adams and those decisions which follow its rationale or reach its result are overruled.

2.

The basic public policy of this state disfavors non-competition agreement exacted of employees. The basic provision of La.R.S. 23:921 (see above) is a strict prohibition against any employer requiring such an agreement of his employee. Even before the 1934 statutory prohibition, the Louisiana courts had consistently held such agreements to be unenforceable. Cloverland Dairy Products Co. v. Grace, 180 La. 694, 157 So. 393 (1934); Blanchard v. Haber, 166 La. 1014, 118 So. 117 (1928). See: Comment, 33 La.L.Rev. 94 (1972); Note, 27 Tul.L.Rev. 364 (1953). In the absence of an enforceable contract to other effect, an employee has the absolute right to enter the employment of another and actively compete with his former employer. Jones v. Ernst & Ernst, 172 La. 406, 134 So. 375 (1931).

As noted in Conque, 173 So.2d 241, the essential basis of these decisions 'is the right of individual freedom and of individuals to better themselves in our free-enterprise society, where liberty of the individual is guaranteed. A strong public policy reason likewise for holding unenforceable an agreement exacted by an employer of an employee not to compete after the latter leaves his employment, is the disparity in bargaining power, under which an employee, fearful of losing his means of livelihood, cannot readily refuse to sign an agreement which, if enforceable, amounts to his contracting away his liberty to earn his livelihood in the field of his experience except by continuing in the employment of his present employer.'

These fundamental background principles must be borne in mind in interpreting the intent of the 1962 amendment. This provides only a limited exception to the stringent prohibition of the statute against such non-competition agreements, and to the strong and long-established public policy of this state to such effect.

If the 1962 amendment is construed as by the Aetna v. Adams line of decisions, then Any expense incurred by an employer in training or advertisement entitles him to enforcement of a two-year restrictive covenant. If, however, this is the proper meaning of the amendment, then virtually any employer can qualify for the exception. This is contrary to the basic public policy incorporated by the statute. By such a construction, the 1962 amendment, which in terms merely added a proviso to the basic enactment, would in actuality have repealed it.

The purpose of the limited exception permitted by the 1962 amendments could not have been to repeal the fundamental purpose of the prohibition. The basic public policy incorporated was to forbid an employer from effectively tying an employee to his present employment. Such a non-competition agreement may effectively prevent an employee from leaving his present employment in order to earn a better living in the occupation in which experienced and in the area of his livelihood.

In view of the fundamental policy of the basic statute, the apparent purpose of the 1962 amendment, as stated in Conque, 'is to protect an employer only where he has invested substantial sums in special training of the employee or in advertising the employee's connection with his business.' 173 So.2d 241.

If an employer extensively...