Thursday, April 12, 2012

Is a Non-Compete Clause (or other Restrictive Covenant) Enforceable in Nevada?

Short Answer: Yes.

Long Answer: Yes, but only if it is reasonable.

But maybe I should go back to the basic question. What is a non-compete clause (otherwise known as a restrictive covenant)?

A non-compete clause is usually a paragraph inserted into your employment contract or partnership buyout agreement that prevents you from competing with your former employer or partner upon termination of your employment or partnership. Basically, when you quit or are fired, you can't go work in the same type of business in the same city while competing for the same clients (that's oversimplified, but you get the point).

Some people are under the impression that non-compete clauses are unenforceable or void in Nevada. This is incorrect. In California, it's a different situation. But here in Nevada, as long as the non-compete clause is reasonable, the courts will enforce it.

Now for the technical jargon. If a Nevada court is asked to enforce a non-compete clause, it will consider the time limitation, the geographical territory, and the hardship on the respective parties. See Jones v. Deeter, 913 P.2d 1272 (Nev. 1996). The first is the length of the time restriction. Nevada courts have upheld time restrictions of up to two years, but invalidated restrictions of five years.

The second factor that the courts consider is the geographical territory that the non-compete clause encompasses. This usually depends on how big the company is that is seeking to enforce the clause. If it's a local company, it probably can't keep somebody from opening up shop in another city. If it's regional or national, however, a court may decide to enforce a much larger geographic restriction.

Finally, the courts normally weigh the hardship on the person being restricted with the potential damage that the competition would cause to the business. This also depends on what the employee received in exchange for agreeing to the non-compete clause.

The next time you are asked to sign a contract with a non-compete clause, make sure that you are fully aware of the consequences down the road if your employment is terminated. You may be looking for another profession for a few years.

If you have any questions about non-compete clauses or any other contract disputes, contact attorney Brandon McDonald by e-mail. Or for more information about attorney Brandon McDonald, visit my Profile, or my firm's website.