It is an old tenet of common law that agreements that restrict individuals’ rights and ability to work where and for whom they wish are generally disfavored. However, as modern economies opened up and large companies began to get more technically-oriented and specialized and use contract clauses that limit employees from going to work for a competitor. Many businesses feel they need to add such clauses to protect their trade secrets and their advantage over competing companies.
Generally speaking, U.S. courts have found that such clauses are valid, but only insofar as they protect a legitimate interest of the business and are not overly broad. The breadth of the restrictions of a non-compete agreement will be looked at a couple ways. First, a court may look to the geographic restrictions of the clause. A non-compete that restricts an employee from working in one city will be looked at differently than one that proposes to stop the person from being employed anywhere in the country. Second, the type of work that is prohibited will be examined. Is the clause specific in restricting the employment of the individual to one part of an industry, or the use of one type of propriety knowledge?
Let’s say a court finds that a non-compete clause is overly-broad. What happens then? In Nevada, for many years a court would modify the agreement sua sponte, or “on its own,” to make it conform with the law. For example, a clause that restricted a person from working nationally might be modified by the court to cover only one county, or other region. However, a recent case in the state has created some doubt as to how these clauses will be enforced going forward. In this case, a state court found a non-compete to be unenforceable, but instead of modifying its terms to comport with the law, it threw out the entire thing, making none of it enforceable.
Previously, many businesses in Nevada may have written their non-compete clauses as broadly as possible, with the understanding that even if they were challenged, a court would just adjust the terms. Now, however, overly-broad clauses may end up being unenforceable in their entirety. Businesses in the state may want to consider learning more about their business law options.