New Nevada Law Further Regulates Restrictive Covenants
Important amendments to Nevada’s non-compete statute, NRS 613.195, recently were enacted when Nevada Governor Steve Sisolak signed into law Assembly Bill 47. Because A.B. 47 does not have a specified effective date, it will go into effect on October 1, 2021, pursuant to Nevada law.
Ban on Non-Competes for Hourly Employees
First, A.B. 47 bans non-compete 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 non-compete 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 or Impose Certain Customer Servicing Restrictions
NRS 613.195 already prohibited covenants that restricted a former employee from providing services to a former customer or client if: (a) “the former employee did not solicit the former customer or client”; (b) “the customer or client voluntarily chose to leave and seek services from the former employee”; and (c) “the former employee is otherwise complying with the limitations in the [non-compete] covenant as to time, geographical area and scope of activity to be restrained[.]”
The new law now 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 the former employee’s covenants 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” In Employee-Initiated Challenges
NRS 608.195 previously required Nevada judges to revise, or “blue pencil,” unreasonable non-compete agreements. If the agreement was supported by valuable consideration but was unreasonable as to time, geography, or activity restricted, the judge was required to revise the agreement such that its restraint was no greater than necessary for the protection of the employer. However, such judicial revision was only required in actions brought by employers to enforce such agreements. In actions brought by employees to invalidate non-compete 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 non-compete covenants. This is one change to the law that is beneficial to employers.
The exact parameters of Nevada’s new requirements for restrictive covenant agreements will be fleshed out through future litigation and court decisions, which Jackson Lewis will monitor. Nonetheless, the significance of these amendments requires employers to give careful consideration in the drafting of non-compete covenants at the outset. Further, while A.B. 47 does not state whether its provisions are applicable retroactively to agreements that already have been executed, all employers should review their existing non-compete agreements with the new law in mind.