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Noncompetition Clauses

Non Compete Agreements

The Nevada law regarding noncompetition agreements changed on June 3, 2017. If you have an agreement that was signed before June 3, 2017, your agreement may be unenforceable, and you should call us now to review it. Also feel free to contact us if you need assistance drafting a new non-compete clause. Please note that if you are considering drafting your own non-compete agreement, many of the online templates contain outdated language that may no longer protect your interests and do not afford you the protection you desire.

Background

In the case of Golden Road Motor Inn, Inc., the Atlantis resort in Reno entered into a contract with one of their employees whereby the employee was prohibited, among other things, from employment, association, or service with any other gaming establishment within 150 miles of Atlantis for one year following the end of her employment with Atlantis. Eventually the employee quit her job with the Atlantis resort and began working for another casino before the one year time period listed in the contract expired.

First, the court found that the language was unreasonable because it extended beyond what was necessary to protect Atlantis' interests and therefore posed an undue hardship on the employee. Perhaps more importantly, the Court found that because the work exclusion term was unreasonable, the agreement was wholly unenforceable. In finding this, the Court specifically declined to modify or “blue pencil” the agreement.

As a response to this, the law regarding non-compete clauses was modified. It now specifically grants the lower courts the power to modify contracts so they can be enforced. Further, it allows any parts of non-compete agreements that are void to be severed so that the remainder of the contract is enforceable.

Current Law

There are three limitations on noncompetition clauses.

A noncompetition covenant is void and unenforceable unless the noncompetition covenant:
(a) Is supported by valuable consideration;
(b) Does not impose any restraint that is greater than is required for the protection of the employer for whose benefit the restraint is imposed;
(c) Does not impose any undue hardship on the employee; and
(d) Imposes restrictions that are appropriate in relation to the valuable consideration supporting the noncompetition covenant.

The second section describes when the agreement is unenforceable as a result of the clients or customers initiating contact with the former employee.

A noncompetition covenant may not restrict a former employee of an employer from providing service to a former customer or client if:
(a) The former employee did not solicit the former customer or client;
(b) The customer or client voluntarily chose to leave and seek services from the former employee; and
(c) 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.
Any provision in a noncompetition covenant which violates the provisions of this subsection is void and unenforceable.

Limits on enforcement of noncompetition if employee is terminated as result of employer restructuring

If the termination of the employment of an employee is the result of a reduction of force, reorganization or similar restructuring of the employer, a noncompetition covenant is only enforceable during the period in which the employer is paying the employee's salary, benefits or equivalent compensation, including, without limitation, severance pay.

This new section grants the courts the power to revise the agreement.

If an employer brings an action to enforce a noncompetition covenant and the court finds the covenant is supported by valuable consideration but 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. Such revisions must cause the limitations contained in the covenant as to time, geographical area and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than is necessary for the protection of the employer for whose benefit the restraint is imposed.

The new law has not been reviewed by the Nevada Supreme Court as of the date of the writing of this article.

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