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CALIFORNIA CORPORATE & SECURITIES LAW

Nevada Supreme Court Refuses To “Blue Pencil” Unreasonable Non-Compete

Nevada, unlike California, applies a reasonableness test to non-compete agreements.  Although the Nevada courts haven’t identified a specific heuristic to be followed, a covenant not to compete will be found to be unreasonable when in the absence of statutory authorization or dominant social or economic justification, “it is greater than is required for protection of the person for whose benefit the restraint is imposed or imposes undue hardship upon the person restricted”.  Hansen v. Edwards, 83 Nev. 189, 191-92 (1967).  The courts consider time and territory to be “important factors to consider when evaluating the reasonableness of a noncompete agreement”.  Id. at 192.

In Golden Road Motor Inn, Inc. v. Islam, 132 Nev. Adv. Op. 49 (July 21, 2016), the Nevada Supreme Court concluded that a contract provision prohibiting a casino host from employment, affiliation, or service with any gaming establishment within 150 miles for one year following the end of employment was unreasonable because it extended beyond what was necessary to protect the former employer’s interests.  A casino host’s job basically entails fostering a casino’s relationships with gamblers.  The Supreme Court noted that the clause at issue would have precluded the erstwhile employee from working as a custodian at another casino. The court noted that a custodian would be unlikely to be luring gamblers away from the former employer.

The employee did, in fact take a job as a casino host at another casino.  Thus, the former employer thought that the trial court should have blue penciled the non-complete.  A majority of the Supreme Court refused the invitation to rewrite the covenant based on “sound public policy”.  Writing for the court, Justice Michael L. Douglas found that withholding the blue pencil avoids the possibility of trampling the parties’ intent, preserves judicial resources, and is consonant with Nevada’s policy of leniency in favor of the employee.

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