In 2017, Nevada enacted a new statute, NRS 613.195, which codifies its approach to the enforcement of non-competition and non-solicitation agreements. As the Nevada Supreme Court has yet to provide any meaningful guidance as to how its provisions should be interpreted, the specific language of NRS 613.195 is the best indicator as to how a Nevada Court may rule in the future. Here are some key provisions of the new law:
Pursuant to NRS 613.195(1), a covenant not to compete is enforceable if it is supported by valuable consideration, is reasonably limited in scope, does not impose any hardship on a former employee, and imposes restrictions that are appropriately related to the consideration supporting the covenant. Here, the crux of the analysis is on the overall reasonableness of the agreement at issue. Notably, “noncompetition covenant” is defined in NRS 613.195(6)(b) as “an agreement between an employer and employee…” so these restrictions should not affect other transactions such as a non-compete in conjunction with the sale of a business.
Pursuant to NRS 613.195(2), a non-solicitation provision may not restrict a former employee of an employer from providing service to a prior customer if (a) the former employee did not solicit the former customer, (b) the customer voluntarily chose to leave and seek services from the former employee, and (c) the former employee is otherwise complying with the limitations of the restrictive covenants (e.g. time, geographic area, and restricted activity) concerning the provision of services to former customers without any contact being instigated by the former employee.
NRS 613.195(4) provides an important limit on potential enforcement, providing that 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.
Finally, 613.195(5) provides that in the event a Court should determine that a non-competition or non-solicitation clause is overly broad or not supported by sufficient consideration, the Court should revise the covenant so that it is restrictive enough to be enforceable. In other words, it is now mandatory for a Court to apply a “blue pencil” rule to reduce the scope of a non-compete as necessary so that it is binding.
It is important to note that case law which predates the efficacy of NRS 613.195 should be analyzed with caution, as prior approaches taken by Nevada Courts may directly conflict with the requirements of this new law.
If you are a Nevada employer who has questions regarding NRS 613.195 and you current non-compete and/or non-solicit agreement, feel free to contact Jordan Wolff at Saltzman Mugan Dushoff, PLLC to discuss. This blog post does not constitute legal advice, and reading or interacting with this website does not create an attorney-client relationship.