Historically, Nevada businesses have used non-compete agreements to prevent key employees from directly competing against the business for a certain period after the employment relationship ends. A non-compete agreement may be part of an overall employment contract or a standalone agreement. While non-competes are generally enforceable under Nevada law, there are some important drafting considerations that employers and employees need to take into account before signing any such agreement.
Nevada Law and Non-Compete Agreements
NRS 613.195 regulates the use of non-compete agreements and covenants in Nevada. A non-compete is “void and unenforceable” unless the following conditions are met:
- The non-compete agreement is supported by valuable consideration, such as the employee’s continued employment;
- The non-compete agreement does not impose any restraint that is required for the protection of the employer who benefits from the restraint;
- The non-compete agreement does not impose any undue hardship on the employee;
- The non-compete agreement imposes restrictions that are appropriate concerning the valuable consideration provided
In determining what qualifies as an “appropriate” restriction under a non-compete agreement, Nevada courts have traditionally looked at the time, geographic area, and scope of activities restrained. For example, a non-compete agreement that permanently barred an employee from working in the same industry as the employer would be inappropriate and unreasonable. But a one-year restriction would likely be upheld. Similarly, a non-compete agreement that covered the entire United States would almost certainly be deemed overbroad. But a geographic restriction limited to southern Nevada would probably be reasonable.
Critically, even if a time, geographic area, or scope restriction is excessively broad, a Nevada court does have the authority to “revise” that portion of the non-compete agreement to make it reasonable and thus maintain the enforceability of the overall agreement. The Nevada Legislature added this provision to NRS 613.195 following a Nevada Supreme Court decision, Golden Road Motor Inn, Inc. v. Islam, which held that the courts could only strike down the entire non-compete agreement if any specific restriction was deemed unenforceable. To clarify, current law does not allow a judge to rewrite or redraft a non-compete agreement, only to “revise” an overbroad restriction.
Will the Federal Government Ban Non-Compete Agreements?
Although Nevada law continues to favor enforcement of non-compete agreements subject to the conditions of NRS 612.195, there have been growing efforts within the federal government to restrict or perhaps abolish the use of most non-compete agreements in employment relationships. While these efforts have not produced any final regulations as of late 2023, we may see new rules emerge in 2024 that promise to seriously upend the legal climate surrounding non-competes here in Nevada.
In January 2023, the Federal Trade Commission announced a proposed rule to outright ban employers from imposing non-compete agreements on their workers. The FTC subsequently announced agreements with the U.S. Department of Labor and the National Labor Relations Board (NLRB) to “police” the use of non-compete agreements, which could lead to investigations into employers suspected of abusing restrictive covenants.
The FTC is expected to vote on its proposed non-compete ban sometime in 2024. The rule is unlikely to take immediate effect, however, as it will be subject to legal challenges. Separately, the NLRB’s general counsel said in a May 2023 memorandum that she believes requiring employers to sign non-compete agreements as a condition of employment “violates the National Labor Relations Act in limited circumstances.” This could lead the NLRB to impose its non-compete ban.
4 Things to Know Before Signing a Non-Compete Agreement
If an employer or prospective Nevada employer asks you to sign a non-compete agreement, there are a few things you need to keep in mind:
- You could lose your job, or have a job offer rescinded, for refusing to sign a non-compete agreement, at least under current law.
- You should always carefully read and understand all of the terms–particularly the restrictions–in a non-compete agreement.
- You should consult a qualified Las Vegas employment attorney before signing a non-compete or any other contract that affects your legal rights.
- You can negotiate the terms of a non-compete agreement. Again, working with an experienced employment attorney can prove invaluable in this area.
Ace Law Group provides legal advice and representation to Nevada workers seeking protection under state and federal labor laws. If an employer has violated your rights, we can fight for you in court or negotiate a settlement that fairly compensates you. So if you need to speak with an attorney, call us today at 702-333-4223 or contact us online to schedule a free initial consultation.