Did you sign a non-compete agreement at some point during your employment in Nevada and now need to know if it’s legal and enforceable? Or is your employer is asking you to sign a non-compete agreement now? This article describes what makes a non-compete legal or illegal in Nevada and how we can help protect your rights by reviewing the agreement and offering advice.
Is My Non-Compete Agreement Legal and Enforceable?
Nevada law outlines broad guidelines for determining whether or not a non-compete is legal. Unfortunately, this law is quite vague and ambiguous, but we’ll explain what it means the best we can.
The law states that to be legal and enforceable a non-compete agreement must follow these guidelines:
- The non-compete must be “supported by valuable consideration.” The law doesn’t define what “valuable consideration” means, but the Nevada Supreme Court has determined that continued employment after signing a non-compete counts as valuable consideration. (See Camco, Inc. v. Baker, 113 Nev. 512, 517 (1997)). In other words, you have received something of value–the ability to continue working–and your employer has received something of value–your agreement not to compete after leaving. If, however, your employer asks you to sign a non-compete right before you leave, then it would need to provide some other value in exchange for your agreeing not to compete.
- The non-compete must not “impose any restraint that is greater than is required for the protection of the employer for whose benefit the restraint is imposed.” This requirement is not defined in the law but essentially means that your employer can’t restrict your post-employment options excessively–it can only restrict action that is necessary to protect its interests. The courts have said that duration and geographical scope are important factors to consider. (See Shores v. Glob. Experience Specialists, Inc., 134 Nev. Adv. Op. 61 (2018); Golden Rd. Motor Inn, Inc. v. Islam, 132 Nev. Adv. Op. 49 (2016)). Specifically, the geographical scope should be limited to areas where “the employer has established customer contacts and good will.” (See Shores). For example, a nationwide restriction is unreasonable when an employer operates in only 33 states, (See Shores), and restricting an employee from operating within 50 miles of any area that the employer is targeting for expansion is unreasonable because the designated area is too speculative and broad. (See Camco).
- The non-compete must not “impose any undue hardship on the employee.” The law doesn’t define “undue hardship,” so this factor is also open to interpretation. In one case, the courts decided that a five-year restriction imposed an undue hardship on the employee and wasn’t necessary to protect the employer’s interests. (See Jones v. Deeter, 112 Nev. 291, 296 (1996)).
- The non-compete must “[i]mpose restrictions that are appropriate in relation to the valuable consideration supporting the noncompetition covenant.” Once again, there is no definition for this factor, but, in essence, if an employer provides greater value in exchange for signing a non-compete, then it can impose greater restrictions. For example, if an employer offers an extra sum of money to sign a non-compete, then it would likely be allowed to impose greater restrictions. However, if an employer terminates you for no good reason just months after signing a non-compete, then the restrictions might not be enforceable because you weren’t able to enjoy continued employment for very long.
Keep in mind that most of the cases I mentioned were decided before the Nevada non-compete law was added in 2017, so the courts could interpret the enforcement of non-competes a little differently based on the new law.
What if the Employer’s Customer or Client Wants to Hire Me?
The law specifically states that an employer may not restrict a former employee from providing services to the employer’s customers or clients if:
- The employee doesn’t solicit the customer or client;
- The customer or client voluntarily leaves the employer and seeks services from the employee; and
- The employee complies with the non-compete’s other limitations (time, geographical area, and scope) that don’t address working with former customers or clients who voluntarily seek the employee’s services.
To re-phrase, if you comply with the non-compete in other ways, then you’re likely allowed to take on your employer’s clients if they voluntarily seek your services without you soliciting them. Of course, this part only addresses the employer’s former customers or clients while the employee works there, not other potential customers or clients who are in the restricted area and might voluntarily contact the employee. The non-compete may still restrict you from serving those people.
What if I’m Laid Off–Does the Non-Compete Still Apply?
If an employee is laid off because of a reduction in force or restructuring, then a non-compete is only enforceable while the employer is paying the employee’s salary and benefits or severance pay.
What if a Judge Says a Non-Compete Violates the Law?
If an employer attempts to enforce a non-competition agreement in court and the judge finds the agreement to be unreasonable or too restrictive, then Nevada law requires the judge to revise the limitations to make them reasonable and only as restrictive as necessary to protect the employer’s interests. This approach is sometimes called the “blue pencil doctrine” and is one the Nevada courts avoided doing, but now the law requires them to do it.
One more note: in some cases, a court could determine that a non-compete is “unconscionable,” meaning that either the procedure used for requiring the employee to sign the agreement was unfair or the substance (i.e. the terms) of the agreement are overly harsh or one-sided. If an agreement is unconscionable, then the judge could revise it or declare it to be unenforceable entirely.
We Can Help Protect Your Rights by Reviewing Your Non-compete Agreement
As you can see, the law regarding non-compete agreements is complex and often vague. We have not provided specific legal advice here but a basic summary of the law, which will apply differently depending on a person’s circumstances.
If you have questions about a non-compete, for a reasonable fee we can review it for you and help determine if it is legal and enforceable and how it might affect your ability to earn a living. We can also offer advice on whether to sign a non-compete or what to do, or not do, if you’ve already signed one.