Over the last year, Nevada’s non-compete law has undergone a number of changes. The latest is a new law setting forth a new standard by which non-compete agreements are to be evaluated.
Nearly a year ago, on July 21, 2016, the Nevada Supreme Court issued its decision in Golden Road Motor Inn, Inc. d/b/a Atlantis Casino Resort v. Islam and Grand Sierra Resort, 132 Nev. __, 376 P.3d 151 (2016). In Golden Road, the Court confirmed that non-compete agreements that “extend beyond what is necessary” to protect the former employer’s interests are unreasonable and unenforceable.
The Nevada Supreme Court also eliminated the “blue pencil” doctrine that historically allowed trial courts to edit the content of a non-compete agreement, turning an unenforceable provision into an enforceable one. The Supreme Court held that lower courts are in the business of interpreting contracts, not writing them.
In response to Golden Road, the Nevada Legislature passed Assembly Bill 276, amending Chapter 613 of the Nevada Revised Statutes. It was signed into law by Governor Brian Sandoval on June 3, 2017.
A.B. 276 is not a codification of Golden Road or the Nevada Supreme Court’s prior decisions regarding non-compete agreements. Rather, A.B. 276 sets forth a new standard by which non-compete agreements are to be evaluated.
These changes include:
1. A non-compete agreement is void and unenforceable in its entirety unless:
- It is supported by valuable consideration;
- It does not impose a restraint that is greater than is required for the protection of the employer;
- It does not impose an undue hardship on the employee; and
- It imposes only those restrictions that are appropriate in light of the valuable consideration given in support of the agreement.
The requirement to provide valuable consideration and limitations on restrictions in light of valuable consideration are new requirements under Nevada law. Unfortunately, the Nevada Legislature did not define what constitutes “valuable consideration.”
2. A non-compete cannot prohibit 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 chooses to leave and seek services from the former employee; and
- The former employee otherwise is complying with the limitations in the non-compete agreement as to time, geographical area, and scope of activity being 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.
3. When an employee who is subject to a non-compete agreement is terminated due to a “reduction in force, reorganization or similar type of restructuring,” the employer may enforce the agreement only “during the period in which the employer is paying the employee’s salary, benefits or equivalent compensation, including, without limitation, severance pay.”
4. Where a court finds that a non-compete agreement is supported by valuable consideration, but has unreasonable or overbroad restrictions, A.B. 276 supersedes Golden Road and restores the court’s ability to revise the restrictions to the extent necessary to make them enforceable.
The exact parameters of the new requirements described above will need to be determined through future litigation and court decisions, which Jackson Lewis will monitor. Further, while A.B. 276 does not state whether its provisions are applicable retroactively to agreements that already have been executed, all employers should take a close look at their existing non-compete forms or template agreements to ensure the terms comply with this new law.