Snell & Wilmer
Legal Alert
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June 16, 2017
Time to Review Your Non-Competition Agreements in Light of New Nevada Statutory Amendments
by John S. Delikanakis
On June 3, 2017, the Governor of Nevada signed Assembly Bill 276 into law, making substantial changes to Nevada Revised Statute (“NRS”) 613, which governs non-competition agreements. The amendments are notable for not only eroding an employer’s ability to protect trade secrets, customer lists, and other confidential information, but for also overturning part of the Nevada Supreme Court’s recent holding in Golden Road Motor Inn v. Islam, 132 Nev. Adv. Op. 49, 376 P.3d 151 (2016) prohibiting the practice of “blue-penciling” an overbroad non-compete to make it reasonable and enforceable in favor of completely voiding such an agreement.
Key points of the amendments are as follows:
A non-competition agreement is void and unenforceable unless the agreement:
  • Is supported by valuable consideration;
  • Does not impose any restraint that is greater than is required for the protection of the employer for whose benefit the restraint is imposed;
  • Does not impose any undue hardship on the employee; and
  • Imposes restrictions that are appropriate in relation to the valuable consideration supporting the noncompetition covenant.
Also, a non-competition agreement may not restrict a former employee from providing service to a former customer or client if:
  • The former employee did not solicit the former customer or client;
  • The customer or client voluntarily chose to leave and seek services from the former employee; and
  • The former employee is otherwise complying with the limitations in the covenant as to time, geographical area and scope of activity to be restrained, other than any limitation on providing services to a former customer or client who seeks the services of the former employee without any contact instigated by the former employee.
The amendments also provide that where an employee is terminated as a result of a reduction in force, reorganization, or restructuring, a non-competition agreement is enforceable only during the period in which an employer is paying the employee’s salary, benefits, or other comparable compensation.
Finally, the Nevada Legislature overturned part of the Nevada Supreme Court’s recent opinion in Golden Road Motor Inn by empowering courts and other tribunals to “blue pencil” non-competition agreements supported with valuable consideration, “but [where the noncompetition covenant] contains limitations as to time, geographical area or scope of activity to be restrained that are not reasonable, impose a greater restraint than is necessary for the protection of the employer for whose benefit the restraint is imposed and impose undue hardship on the employee, the court shall revise the covenant to the extent necessary and enforce the covenant as revised.” Assembly Bill 276.
Employers should review their non-competes to make sure they are still enforceable. Specifically, employers may want to analyze whether only truly important (read narrow) business interests are being protected in a manner that doesn’t cause “undue hardship” for the employee, and whether the “valuable consideration” given in exchange is reasonable in relation to the value of the employer’s interest being protected.[1]
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Notes:
[1] The statements and views expressed in this posting are of the author, and are intended for general informational purposes only, and do not constitute legal advice or a legal opinion.
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