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 Update is provided for informational purposes only. It is not intended as legal advice nor does it create an attorney/client relationship between Jackson Lewis and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. Reproduction in whole or in part is prohibited without the express written consent of Jackson Lewis.

This Update may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.

Jackson Lewis P.C. represents management exclusively in workplace law and related litigation. Our attorneys are available to assist employers in their compliance efforts and to represent employers in matters before state and federal courts and administrative agencies. For more information, please contact the attorney(s) listed or the Jackson Lewis attorney with whom you regularly work.

See AllRelated Articles You May Like

April 20, 2018

Brazilian Labor Courts Continue to Emphasize Importance of Non-Compete Clause Limitations

April 20, 2018

A recent Brazilian labor court ruling clarified the procedural requirements for employers drafting non-compete clauses in employment agreements. Although the Brazilian Federal Constitution establishes “freedom of work,” and the Brazilian Industrial Property Law (Law 9.279/1996) prevents an employee from disclosing an employer’s... Read More

March 2, 2018

Massachusetts Legislature Close to Deal on Non-Compete Law?

March 2, 2018

The Massachusetts Legislature, after a decade of attempts, may pass restrictions on the use of non-compete covenants in the Commonwealth. The co-chairmen of the Joint Committee on Labor and Workforce Development, Senator Jason Lewis and Representative Paul Brodeur, reportedly are optimistic that the Legislature is “closing in on a... Read More

January 9, 2018

New Hampshire, Pennsylvania, Vermont May Restrict Use of Non-Compete Agreements in Employment

January 9, 2018

Proposals to restrict the use of non-compete agreements in employment have been introduced in New Hampshire, Pennsylvania, and Vermont. This appears to be the continuation of a trend that started nearly a year ago. On January 23, 2017, the Massachusetts Legislature introduced six separate bills seeking to curb employers’ use of non-... Read More