Many employers want to have their employees sign contracts prohibiting them from working for a competing business after they leave their current job, commonly called “non-compete agreements.” In Nevada, these agreements are allowed, but must meet certain requirements to be enforceable in court.
Nevada Supreme Court’s Decision in Golden Road
In 2016, the Nevada Supreme Court invalidated the enforceability of a non-compete agreement of a casino host. Golden Rd. Motor Inn, Inc. v. Islam, 132 Nev. Adv. Rep. 49, 376 P.3d 151 (2016). The non-compete agreement prohibited the defendant “from employment, affiliation, or service with any gaming business or enterprise” in a 150-mile radius from her current job. Id. at 155. The court looked to see if any time period, geographical limitation, or restriction on areas of future employment were greater than necessary for the protection of the employer. Id.
The key issue was protecting the casino from the employee’s ability to lure casino customers away, therefore damaging its business. Id. at 155. This agreement was unreasonable because she could hypothetically be prevented from being a janitor at a casino, which could not lure away casino customers, and thus was unreasonable to protect the employer. The Court also found that courts do not have the power to modify agreements to remove the unreasonable restraints on trade. Id. at 159-60.
Nevada’s Legislature Amends NRS § 613.195
Following the Golden Road decision, the Nevada State Legislature enacted amendments to NRS § 613.195. This statute specifically identifies the limitations of non-compete agreements. For the agreement to be enforceable, the non-compete agreement must:
(a) Be supported by valuable consideration;
(b) Not impose a greater restraint than is necessary for the employer’s protection;
(c) Does not impose an undue hardship in the employee; and
(d) Imposes restrictions appropriate in relation to the consideration supporting the covenant.
NRS § 613.195(1). If the agreement fails in any respect, it is “void and unenforceable.”
However, the statute also requires courts to modify the agreements under specific circumstances to make them enforceable. The court must modify any agreement’s unreasonable limitations as to time, geographical area, or scope of restrained activity so that the agreement no longer contains an unreasonable restraint on trade. Id. at (5). The court must also modify the agreement if it contains more protection than is necessary for the employer’s protection, and to remove any undue hardship on the employee. In other words, if the agreement’s restrictions are too broad, but supported by valuable consideration, the court will modify the agreement, reducing the restrictions to make it enforceable.
Non-compete agreements can be complicated. For employers, it is important to make the restrictions clear; and also make plain why those restrictions are necessary for the protection of the business. For employees, it is important to understand if the restrictions will keep you from taking a new position.
As always, if you think you might need an attorney, you probably do. You can contact us here, we love answering questions!