The law governing enforcement of non-competes and other employee restrictive covenants varies from state to state. As a result, the field of non-competes is ever-changing and companies with employees in multiple states need to understand the law in each state in which they have personnel. For employers with a presence in Nevada, recent changes in the law could impact enforceability of non-competes and other restrictive covenants with employees in that state.
On June 3, 2017, Governor Brian Sandoval signed Assembly Bill (AB) 276, which became effective immediately. The Bill includes provisions governing enforceability of noncompetition covenants. Under the new law, a non-compete is void and unenforceable in Nevada unless it:
- Is supported by valuable consideration;
- Imposes no greater a restraint on the employee than is required for the employer’s protection;
- Places no undue hardship on the employee to comply with its terms; and
- Only imposes restrictions that are appropriate for the amount of consideration given in exchange for the agreement.
Additionally, a former employee cannot be restricted from providing services to a former customer or client if:
- The former employee did not solicit the former customer’s business;
- The customer or client voluntarily chose to seek out the former employee’s services; and
- The former employee otherwise complies with the terms of the non-compete, including any restrictions as to duration, geographic area, or scope.
AB 276 also limits the enforceability of noncompetition covenants following layoffs. If an employee is terminated due to a reduction in force, reorganization, restructuring, or similar layoff practice, a non-compete is only enforceable while the employee is receiving benefits from the former employer, regardless of the time period stated in the agreement.
Although the law is mostly designed to protect employees, employers seeking to limit competition by former employees may also benefit from it. For example, the new law gives courts the power to revise unreasonable limitations in non-compete agreements and enforce them as needed to balance the interests of the employer and its former employee. This blue-pencil power overturns a 2016 ruling from the Nevada Supreme Court holding that courts could not blue-pencil overbroad restrictions to make them enforceable. Golden Road Motor Inn, Inc. v. Islam, 376 P.3d 151 (Nev. 2016). The law in Nevada allowing employers to enforce agreements to prevent the disclosure of trade secrets, business methods, customer lists, or other confidential information also remains intact, offering additional means of protection to employers.
While employers were advised to take extra care to draft narrow non-compete provisions following the Golden Road Motor Inn decision, lest the entire agreement be tossed out, they may now begin to expand such agreements with the expectation that courts will scale them back when necessary and salvage the enforceable provisions. Opponents of non-competes argue that the real protectable interests in today’s information-driven society are trade secrets and not the labor or skills of any one job position. Alternatively, supporters of covenants not to compete see the benefits enforcement has for businesses looking to establish themselves in a state that will protect their interests. Regardless of opinion, employers with noncompetition covenants in Nevada will want to take another look at those agreements to analyze their enforceability under the new law. Employees who disregarded overbroad non-compete agreements following the ruling in Golden Road Motor Inn may run the risk of enforcement now.
Ashley Bowcott, a summer law clerk at Berman Fink Van Horn, contributed to this article.