Nevada Courts Required to Re-Write Unreasonable Non-Compete Provisions

Effective June 3, 2017, AB 276 amends NRS Chap 613, requiring courts to revise, rather than wholly reject, unreasonable employment contract non-compete provisions:

“If an employer brings an action to enforce a noncompetition covenant and the court finds the covenant is supported by valuable consideration but contains limitations as to time, geographical area or scope of activity to be restrained that are not reasonable, impose a greater restraint than is necessary for the protection of the employer for whose benefit the restraint is imposed and impose undue hardship on the employee, the court shall revise the covenant to the extent necessary and enforce the covenant as revised. Such revisions must cause the limitations contained in the covenant as to time, geographical area and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than is necessary for the protection of the employer for whose benefit the restraint is imposed.”

This amendment reverses a recent and notable Nevada Supreme Court holding in Golden Road Motor Inn, Inc. v. Islam, 376 P.3d 151 (2016). In that case, the court ruled that unreasonable yet unambiguous non-compete provisions could not be reformed by the court, as “[s]uch actions are simply not within the judicial province.” Id. at 159, internal citation omitted. Although the Golden Road employee’s non-compete unreasonably prohibited “employment, association, or service with any other gaming establishment within 150 miles of Atlantis for one year” (Id. at 153), the court cited legal precedent and public policy considerations when it declined to revise the non-compete’s restrictions.

“Restraint avoids the possibility of trampling the parties’ contractual intent…. Even assuming only minimal infringement on the parties’ intent, … a trespass at all is indefensible, as our use of the pencil should not lead us to the place of drafting. Our place is in interpreting. Moreover, although the transgression may be minimal here, setting a precedent that establishes the judiciary’s willingness to partake in drafting would simply be inappropriate public policy as it conflicts with the impartiality that is required of the bench…”

Id at 157. Additionally, the court cited concerns that an employer’s unequal bargaining power, under which an employee would enter into an overly restrictive non-compete agreement, should not “thereafter [be] rewarded with the court’s legal drafting aid, as the other party faces economic impairment, restrained in his trade. In the context of an agreement that is in restraint of trade, a good-faith presumption benefiting the employer is unwarranted.” Id. at 158.

It is unclear how this statutory reversal of long-standing restrictions on judicial drafting will be treated by the courts. It appears, however, that under the new law, employees will no longer be fully released from unreasonable non-compete provisions, severed in their entirety under Golden Road. Instead, both parties to an employment contract will be subject to “reasonable” non-compete terms as drafted by the court.