On June 3, 2017, Governor Sandoval signed Assembly Bill 276 into law, amending Nevada Revised Statute 613, which governs non-competition agreements. Notably, the law adds requirements to the enforceability and validity of non-competition agreements, and importantly, now allows courts to "blue-pencil" non-competition agreements, overturning Nevada Supreme Court's recent decision in Golden Road Motor Inn, Inc. v. Islam.
First, the new law establishes that a non-competition agreement is void and unenforceable unless the agreement satisfies four requirements. The agreement must: (1) be supported by valuable consideration; (2) not impose a restraint greater than what is required to protect the employer; (3) not impose an undue hardship on the employee; and (4) impose restrictions that are appropriate in relation to the valuable consideration supporting the agreement.
Second, the law establishes that a non-competition agreement may not restrict a former employee from providing services to a former customer or client if (1) the former employee did not solicit the former customer or client; (2) the customer or client voluntarily chose to leave and seek the services of the employee; and (3) the former employee is otherwise complying with the non-competition agreement.
Third, the law provides that a non-competition agreement is only enforceable during the time in which the employer is paying the employee's salary, benefits, or equivalent compensation if an employee is terminated because of a reduction in force, reorganization, or similar restructuring.
Finally, the law allows "blue-penciling," which overturns Nevada Supreme Court's recent decision in Golden Road Motor Inn, Inc. v. Islam (for a discussion of that decision click here). "Blue penciling" refers to a court's ability to strike or modify unreasonable terms or provisions from a non-compete agreement, and enforce the revised agreement. In Golden Road Motor, the Court refused to adopt the "blue pencil" doctrine because the Court stated it was not its role to rewrite the parties' contract and that courts are not empowered to make private agreements. The Court held that an unreasonable clause in a non-competition agreement rendered the entire agreement unenforceable. Now, under Nevada's amended law, the court is empowered to revise a non-competition agreement to the extent necessary and enforce the revised agreement.
Employers should review their existing non-competition agreements for compliance with the Nevada law.
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