Earlier this month, Governor Sandoval signed Assembly Bill 276 (AB 276) into law. AB 276 makes substantial changes to Nevada Revised Statute 613.
In short, AB 276 modifies Nevada law on non-competition restrictive covenants and weakens an employer’s ability to protect trade secrets and proprietary information.
Pursuant to the new law, in order for a non-competition agreement to be valid and enforceable in Nevada, the covenant must be supported by valuable consideration and the restrictions must be appropriate in relation to such consideration. The non-compete must not impose any undue hardship on an employee. In addition, the restrictive covenant must not impose any restraint on an individual employee that is greater than required for the protection of the employer
Query what constitute “valuable consideration” and what relatively “appropriate restrictions” will mean, moving forward.
AB 276 prohibits employers from restricting former employees from providing services to a former client, in specific situations. For example, where a former client voluntarily chose to seek the services of a former employee. In this situation, a former employee cannot engage in solicitation and must otherwise be complying with the limitations in the covenant.
AB 276 also provides that in the event an employer initiates an action to enforce a non-competition agreement supported by valuable consideration, but determines that the restrictions are inappropriate or impose an undue burden on an employee, the court shall be permitted to modify the restrictive covenant to the extent necessary and enforce the covenant as revised.
Importantly, AB 276 limits enforceability of non-competition agreements where an employee is terminated as a result of a reduction in force or reorganization. A non-competition agreement is only enforceable in this situation while an employer continues to pay an employee’s salary, benefits or severance pay.
Nevada employers are well-advised to consider AB 276 when reviewing and drafting employee confidentiality and non-compete agreements. Without limitation, non-competition restrictive covenants must be tailored to protect legitimate employer business interests and the consideration exchanged must be relatively appropriate.
Contact an FTC defense lawyer for more information on developing and executing preventive measures, such as auditing existing confidentiality, non-compete and intellectual property agreements.
Additional information about the author of this article can be found, here.
Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.
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