Should Nevada Employers Revise Non-Compete Agreements In Light Of Amendment To NRS 613.195?

• Published date: 08 June 2022
• Subject Matter: Employment and HR, Contract of Employment, Employee Benefits & Compensation
• Law Firm: Brownstein Hyatt Farber Schreck, LLP
• Author: Mr Arthur Zorio

Many technology and non-technology employers require employees having access to proprietary and sensitive information to sign contractual agreements not to compete during and when their relationship terminates. This contractual aid is common in Nevada and other states that allow such non-compete agreements. This contractual protection is in addition to the protections afforded by the Uniform Trade Secrets Act (see e.g., Chapter 600A, Nevada Revised Statutes), the Defend Trade Secrets Act (18 U.S.C. Sections 1831-39), robust confidentiality and non-disclosure agreements, as well as effective strategies to perfect, maintain and protect intellectual property. Some states, such as California, only allow non-compete covenants in specific circumstances. See Cal. Bus. & Prof. Code Section 16600 et seq. (individuals); cf. Ixchel Pmarma, LLC v. Biogen, Inc., 9 Cal. 5th 1130, 1162 (2020) ('a rule of reason applies to determine the validity of a contractual provision by which a business is restrained from engaging in lawful trade or business with another business.')

In 2017, the Nevada Legislature adopted a statute specifically addressing covenants not to compete. Prior to 2017, covenants not to compete were governed largely by rules created by the court, focusing upon the reasonableness of the restrictive terms and the consideration provided to the employee. Hansen v. Edwards, 83 Nev. 189, 191-92 (1969) ('[a] restraint on trade is unreasonable ' if it is greater than is required for the protection of the person for whose benefit the restraint is imposed or imposes undue hardship upon the person restricted.); Ellis v. McDaniel, 95 Nev. 455, 458-59 (1979) (time and geographic limitations are necessary factors to consider when evaluating the reasonableness of a noncompete); Jones v. Deeter, 112 Nev. 291, 292 (1996) (holding five year restriction was too great a hardship for the employee and not necessary to protect the employer's interests); Camco v. Baker, 113 Nev. 512, 519-20 (holding restrictions of two years and within fifty miles of any area which was the 'target of a corporate plan for expansion' unreasonable).

Previously, at the preliminary injunction stage, Nevada district courts would fashion a preliminary injunction enforcing the restrictive covenant while the case is pending. The Supreme Court of Nevada addressed several appeals involving preliminary injunctions and declared certain restrictions were unreasonable, thereby revising the terms of the...