Amendments to Nevada’s noncompete statute, NRS 613.195, will ban noncompete agreements with hourly workers and limit employers’ ability to sue to enforce certain customer servicing restrictions. The new law also will extend the required judicial “blue pencil” process to actions brought by employees challenging noncompete covenants.
AB 47, signed by Gov. Steve Sisolak, does not specify an effective date. Therefore, it will go into effect on Oct. 1, pursuant to Nevada law.
Hourly Employees
AB 47 bans noncompete covenants for employees who are “paid solely on an hourly wage basis, exclusive of any tips or gratuities.” The law does not appear to affect covenants for hourly employees who also receive bonuses, profit sharing, or commissions from the employer.
If the employer or employee files a lawsuit to enforce or challenge the noncompete covenant and the court finds the covenant is unlawful because it “applies to [an employee paid solely on an hourly wage basis],” the court is required to award the employee their reasonable attorneys’ fees and costs.
Ban on Actions to Enforce
NRS 613.195 prohibited covenants that restricted a former employee from providing services to a former customer or client if:
“[T]he former employee did not solicit the former customer or client.””[T]he customer or client voluntarily chose to leave and seek services from the former employee.””[T]he former employee is otherwise complying with the limitations in the [noncompete] covenant as to time, geographical area and scope of activity to be restrained[.]”
The new law makes clear that an employer may not bring an action seeking to restrict any of these activities, even if the agreement itself does not explicitly do so.
If the employer or employee files a lawsuit regarding covenants with the former employee and the court finds the employer has wrongfully restricted or attempted to restrict the former employee from providing services to customers or clients in the manner described above, the court is once again required to award the employee their reasonable attorneys’ fees and costs.
‘Blue Pencil’
NRS 608.195 required Nevada judges to revise, or “blue pencil,” unreasonable noncompete agreements. If the agreement was supported by valuable consideration but was unreasonable as to time, geography or activity restricted, the judge must revise the agreement such that the restraint was no greater than necessary for the protection of the employer. However, such judicial revision was required only in actions brought by employers to enforce such agreements. In actions brought by employees to invalidate noncompete agreements, judges were not required to engage in the “blue pencil” process.
The new law extends the required judicial reformation process to actions brought by employees challenging noncompete covenants, giving employers fairer opportunity.
The exact parameters of Nevada’s new requirements for restrictive covenant agreements will be fleshed out through future litigation and court decisions. Now, the significance of these amendments requires employers to give careful consideration in the drafting of noncompete covenants at the outset. Further, while AB 47 does not state whether its provisions are applicable retroactively to agreements that have been executed, employers should review their existing noncompete agreements with the new law in mind.
Joshua A. Sliker is an attorney with Jackson Lewis in Las Vegas. © 2021 Jackson Lewis. All rights reserved. Reposted with permission.
Originally found on SHRM Read More
