Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On May 25, 2021, Governor Steve Sisolak signed Assembly Bill 47, revising the law regarding noncompetition covenants in Nevada. As originally drafted, Assembly Bill 47 would have repealed Nevada’s noncompetition statute, NRS 613.195, and amended the Nevada Unfair Trade Practices Act to make it unlawful to enter into a noncompetition agreement that restrains a natural person from engaging in a lawful profession, trade or business of any kind except for agreements involving: (1) the sale of a business; (2) the dissolution of or disassociation from a partnership; or (3) the dissolution of or termination of an interest in a limited-liability company. After further revisions, however, the final bill as enacted retains NRS 613.195 and instead modifies several of its provisions.
Brief Background of NRS 613.195
The Nevada Legislature enacted NRS 613.195 in response to the Nevada Supreme Court’s 2016 decision, Golden Road Motor Inn, Inc. v. Islam, 132 Nev. 476, 376 P.3d 151 (2016). In Golden Road, the Nevada Supreme Court held that when a noncompetition agreement extends beyond what is reasonably necessary to protect the employer’s interest, the agreement is wholly unenforceable and courts may not reform or “blue pencil” the contract. In response, the Nevada Legislature in 2017 created a new noncompete statute in the form of Nevada Revised Statute 613.195 which, in addition to laying out the parameters of noncompete restrictions, also required courts to modify an otherwise unreasonable noncompete agreement “to the extent necessary and enforce the covenant as revised.” NRS 613.195(5). The only exception mentioned in the 2017 version of NRS 613.195 is that covenants not to compete cannot restrict former employees from providing services to a former client or customer in certain circumstances. NRS 613.195(2). The 2017 version of NRS 613.195 was thus a broad pronouncement on the enforceability of noncompete covenants and the court’s ability to blue pencil such agreements.1
AB 47 Revises NRS 613.195
Assembly Bill 47 revises NRS 613.195 in three notable ways. First, Assembly Bill 47 amends NRS 613.195(2) to make explicit that an employer is prohibited from bringing an action to restrict a former employee from providing service to a former customer or client under the circumstances enumerated in NRS 613.195(2)(a)-(c).
Assembly Bill 47 also modifies NRS 613.195 by providing that noncompetition covenants may not apply to an employee “who is paid solely on an hourly wage basis, exclusive of any tips or gratuities.” NRS 613.195(3).
Finally, Assembly Bill 47 revises NRS 613.195 by requiring the court award attorney’s fees and costs to the employee in an action to enforce or challenge a noncompetition covenant if the court finds that the noncompetition covenant applies to an employee paid on an hourly wage basis or that the employer has impermissibly restricted or attempted to restrict the employee from providing services to a former customer or client. NRS 613.195(7). Assembly Bill 47 also clarifies that nothing in the subsection shall be construed as prohibiting a court from otherwise awarding attorney’s fees to a prevailing party pursuant to NRS 18.010.
Employers in Nevada should consult with counsel to ensure that their noncompete agreements contain the most up-to-date provisions for enforceability.
1 Pursuant to NRS 613.195(1), a noncompete agreement is enforceable if it (1) is supported by valuable consideration; (2) does not impose a restraint that is greater than is required for the protection of the employer; (3) does not impose an undue hardship on the employee; and (4) imposes only those restrictions that are appropriate in light of the valuable consideration given in support of the agreement.