Search form

Nevada Confirms Its Restrictive Covenant Law, But Rejects Blue Penciling

By Elayna J. Youchah, Paul T. Trimmer, Deverie J. Christensen and Lisa A. McClane
  • July 26, 2016

In the first decision to reach the Nevada Supreme Court on whether state district courts may modify or “blue pencil” non-competition agreements, the high court has concluded that doing so would violate Nevada law. Golden Road Motor Inn Inc. d/b/a Atlantis Casino Resort Spa v. Islam, 132 Nev. Adv. Op. 49 (July 21, 2016). The 4-3 decision signals a clear change in direction that affects the enforceability of non-competition agreements in Nevada.

The Court explained that under Nevada law, an overly broad term prohibiting an employee from “employment, affiliation, or service” with a competitor, which “extends beyond what is necessary” to protect the former employer’s interests, is unreasonable and “renders the noncompete agreement wholly unenforceable.”

Distinguishing this case from prior published decisions, the Court reasoned that exercising “judicial restraint when confronted with the urge to pick up the pencil is sound public policy … as our use of the pencil should not lead us to the place of drafting.” The Court explained its role as interpreting contracts, not writing them, and that altering a contract, even minimally, would “conflict[] with the impartiality that is required of the bench….”

Further, the Court stated that “[a] strict test for reasonableness is applied to restrictive covenants in employment cases because the economic hardship imposed on employees is given considerable weight.” Employers clearly hold a superior bargaining position when such contracts are presented to employees and, in the context of a restraint of trade, the Court said that “a good faith presumption benefiting the employer is unwarranted.”

This clear change in direction affects the enforceability of non-competition agreements in Nevada. Employers must ensure that non-competition provisions are drafted clearly and are reasonable in all respects. Employers must be mindful of whether the provisions “extends beyond what is necessary” to protect their interests. Questions to ask include:

  • Is the period of non-competition longer than necessary?
  • Is the geographic scope (the territory in which competition is prohibited) larger than needed when compared to the work the former employee performed and information to which the employee was exposed?
  • Does the non-competition clause prevent the former employee from being employed in the same industry generally, or is the restriction limited to the same or substantially similar type of work the former employee performed while employed with the former employer?
  • Does the language in the non-competition provision (or the contract in which it appears) provide factual support upon which a court may rely to assess the reasonableness of the time, territory, and job restrictions?

Similar courts in many other states, the Nevada Supreme Court has stated that non-competition agreements generally are disfavored and will not be enforced unless narrowly drafted. By following an “all or nothing” approach to overbroad agreements, Nevada is in the minority when compared to courts that take either the strict blue pencil approach (see, e.g., our article, North Carolina Supreme Court Reiterates Limited Blue Pencil Approach to Overbroad Non-Competes) or the reasonable reformation approach (see, e.g., our article, Missouri Cases Illustrate Enforceability of Well-Drafted Non-Competition Agreements). Accordingly, careful drafting is required.

Employers, particularly those seeking to use non-compete agreements in a multistate environment, should take the time to review and revise form and contract-specific non-competition agreements to ensure the agreements are enforceable.

Jackson Lewis attorneys in our Las Vegas office are available to answer inquiries regarding this case and assist employers with non-competition agreements in Nevada.

©2016 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

Reproduction of this material in whole or in part is prohibited without the express prior written consent of Jackson Lewis P.C., a law firm with more than 900 attorneys in major cities nationwide serving clients across a wide range of practices and industries. Having built its reputation on providing premier workplace law representation to management, the firm has grown to include leading practices in the areas of government relations, healthcare and sports law. For more information, visit www.jacksonlewis.com.

See AllRelated Articles You May Like

January 7, 2019

2019: The Year Ahead for Employers

January 7, 2019

Over the past year, state and local governments responded in a variety of ways to national policy, and the midterm elections painted a picture of what’s in store for employers in 2019 and beyond. Jackson Lewis’ annual report outlines upcoming issues, trends, legislation and regulations employers need to be aware of in the coming year... Read More

August 27, 2018

Non-Compete Covenants Must be Reasonable for Preliminary Injunction, Nevada Supreme Court Affirms

August 27, 2018

A non-compete agreement in Nevada “must be limited to the geographical areas in which an employer has particular business interests,” the Nevada Supreme Court has affirmed. Shores v. Global Experience Specialists, Inc., 134 Nev. Adv. Op. 61 (Aug. 2, 2018). The Court also concluded that when an employer seeks to enforce a non-compete... Read More

August 1, 2018

Massachusetts Legislature (Finally) Passes Non-Compete Law

August 1, 2018

The Massachusetts Legislature, at long last, has passed a bill regulating the use and enforcement of non-compete agreements in the private sector. Once “An Act relative to the judicial enforcement of noncompetition agreements” is signed by Governor Charlie Baker, it will take effect on October 1, 2018. The Legislature has attempted... Read More