Nevada Supreme Court Addresses Noncompete Agreements

In the case of Scott Vinh Duong, M.D., et al. v. Fielden Hanson Isaaces Miyada Robison Yeh, Ltd., the Nevada Supreme Court recently ruled that an unenforceable noncompetition agreement containing a blue-pencil provision can be modified by a trial court. In a blue-pencil provision, the parties to a contract agree that if a court finds a portion of the contract to be unlawful, it can revise the offending provision and still enforce the contract as modified.

The Court’s ruling, which applied to a 2016 noncompete contract, is consistent with Nevada Revised Statutes 613.195(5), enacted in 2017, which provides that a trial court must blue-pencil a noncompete provision and enforce the revised agreement. Thus, employers can be assured that blue-pencil provisions in noncompete agreements entered into before 2017 should be honored by Nevada courts.

Restrictive covenants such as noncompete agreements are often disfavored by courts if legally challenged. In some instances, courts have found noncompete provisions unenforceable as written and have invalidated the entire provision, leaving the employer completely unprotected. The Duong case provides important guidance to employers to include in their agreements language which allows a reviewing court to blue-pencil or otherwise edit troubling language so that the parties’ agreement is given its intended effect, even if certain adjustments are deemed necessary.

If you have questions about this development or employment contracts, please contact a KZA attorney.

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