Have You Reviewed Your Employee Noncompete Agreements Recently?

If you have employee noncompete agreements (noncompetes) or provisions in your contracts, it is important they be permissible under current state law, well and narrowly drafted, and appropriately tailored to fit the particular situation. See our FYI on Employment Agreements, Colorado Non-Competition, Confidentiality and Non-solicitation Agreements.

Both state and federal regulators have noncompetes in their sightline of scrutiny. State law on noncompetes differs greatly. Some states prohibit noncompetes (such as Nebraska and only for very narrow exceptions in California). A number of states have legislation narrowing the use of noncompetes (for instance, Utah, where currently (subject to change in this legislative session) noncompetes are generally void if the term of the noncompete exceeds one year from the employee’s last day of employment).

A number of states permit noncompetes, but it is unclear whether they are enforceable against employees under those states’ laws. Some states, such as Arizona and Colorado, allow courts to modify, or “blue-pencil,” noncompetes in some instances where a provision does not comply with the law. Other states may permit a party to petition the court to reform a noncompete provision, which is not in line with the parties’ intent (for example, Kansas and Texas).

If you are a Nevada employer, you especially want to take note. The Nevada Supreme Court recently held that Nevada state courts shall not blue-pencil non-compete agreements. Golden Road Motor Inn, Inc. v. Islam (Nev. 2016). If a noncompete agreement contains any provision whatsoever that “extends beyond what is necessary” to protect a company’s interest, the court clarified that the entire agreement will be deemed unenforceable. In evaluating what are “necessary” restrictions, Nevada courts (and so employers) will consider: length of time, geographic scope, scope of work, and any other restrictions in the agreement.

If your organization uses noncompetes, even if you are not a Nevada employer, this might be an opportune time to review your noncompete agreements and provisions under current law.