Nevada Supreme Court hands down decision affecting all employers
In our ongoing effort to ensure our clients remain compliant with applicable law and proactively protect their business interests, we want to advise you of a new decision that just issued on Thursday, July 21, 2016 from the Nevada Supreme Court. The case, Golden Road Motor Inn, Inc. d/b/a Atlantis Casino Resort vs. Islam and Grand Sierra Resort, 132 Nev. Advanced Opinion 49 (“Atlantis”) has wide-ranging significance for any employer who holds their employees to restrictive covenants of non-competition.
The decision will fundamentally impact the interpretation and enforceability of almost every non-competition agreement in Nevada. Among other findings, the Nevada Supreme Court weighed in on (1) what will be deemed reasonable and unreasonable restraints going forward and (2) that the blue-penciling severability provision contained in most will not be applied except where ambiguous language is found to exist.
With regard to reasonableness, the court would not enforce a restriction that was greater than required for the protection of the entity for whose benefit the restraint was imposed OR imposes an undue hardship on the employee. The Court paid particular attention to the overbroad nature of the involved restriction; that is, it prevented the employee from working in any capacity for any competitor of the predecessor employer. The Court reasoned that the restraint included working even as a janitor for the competitor as an example of how overbroad and unreasonable the restriction was. Such an overbroad restriction was deemed inherently unreasonable and therefore unenforceable. If the restrictive covenant in your company’s agreement attempts to similarly restrict ALL work for a competitor, it will be deemed unreasonable and overbroad. That agreement must be revised in order to conform to the Atlantis decision.
Moreover, the Supreme Court concluded that the “blue-penciling” severability provision could not be used to interpret the unambiguous provision in order to “save” it and enforce it to the greatest extent that the court would enforce. Most agreements contain similar blue-penciling provisions. The thought has traditionally been that the provision would provide the court with the discretion to reduce the geographic scope or duration to the maximum extent the court would be willing to enforce. However, starting immediately, the blue-penciling provision is inapplicable to unambiguous language and that unambiguous provision will not be enforced if deemed unreasonable. The offending overbroad restriction (e.g., duration, geographic scope, overbroad restriction from ALL jobs) will be deemed unreasonable and will not be enforced.
Accordingly, we are assisting our clients in redrafting their restrictive covenant agreements to comply with Atlantis and maximize the prospect for enforcement going forward. The decision may have a side benefit of allowing employers to hire away employees from competitors whose non-competition agreements do not conform to the most recent interpretation. The decision has not yet been widely publicized and we suspect many companies in Nevada will be delayed in drafting these necessary revisions.
If we can assist, please contact your attorney at Lewis Roca Rothgerber Christie or our labor and employment partner in Las Vegas, Howard Cole, at hcole@lrrc.com or (702) 949-8315.
We hope this will assist you in providing the necessary protections for your company.