Nevada: Rules for Restrictive Non-Compete Agreements Change Again

Previously, the Nevada Supreme Court declared that overly broad non-compete agreements will be wholly unenforceable, meaning agreements containing overly restrictive provisions beyond what is needed to protect an employer’s interest will be void in total. The Supreme Court stated that “blue penciling,” or modify parts of an agreement to make it enforceable, would not be allowed.

Now, AB 276 emphasizes the need for employers to carefully consider restrictive non-compete agreements. Specifically, non-compete agreements will be considered unenforceable unless they meet specific conditions:

1. The agreement is supported by valuable consideration;
2. The agreement does not impose greater restraints than is required for the protection of the employer;
3. The agreement does not impose undue hardship on the employee; and
4. The agreement imposes restrictions that are appropriate in relation to the valuable consideration supporting the non-compete agreement.

In terms of “valuable consideration,” continued employment has historically be considered sufficient consideration. However, in light of #4 of the above list of conditions, employers may need to carefully review non-compete agreements to ensure that there is enough consideration, besides continued employment, offered in order to balance out particularly restrictive agreements.

Where the bill changes course from the previous Supreme Court decision is an additional provision stating that a court will be required to “blue pencil” any agreement that imposes undue hardship on employees. Thus, employers with overly broad non-compete agreements may be able to modify agreements in court and then enforce the revised edition, rather than the whole agreement being rendered invalid.