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How did the 2017 legislative session change Nevada law regarding non-competition agreements?

Governor Sandoval recently signed Assembly Bill 276 (“AB 276”) into law. It has always been the law in Nevada that employee non-competition agreements cannot be enforced unless they are reasonable in scope. AB 276 refines this principle in several important ways.

First, AB 276 states that a non-competition agreement is void and unenforceable unless it: (a) is supported by valuable consideration; (b) does not impose any restraint that is greater than is required for the protection of the employer for whose benefit the restraint is imposed; (c) does not impose any undue hardship on the employee; and (d) imposes restrictions that are appropriate in relation to the valuable consideration supporting the noncompetition covenant.

Second, a non-competition agreement may not restrict a former employee of an employer from providing service to a former customer or client if: (a) the former employee did not solicit the former customer or client; (b) the customer or client voluntarily chose to leave and seek services from the former employee; and (c) the former employee is otherwise complying with the limitations in the covenant as to time, geographical area and scope of activity to be restrained, other than any limitation on providing services to a former customer or client who seeks the services of the former employee without any contact instigated by the former employee.

Third, if the termination of the employment of an employee is the result of a reduction of force, reorganization or similar restructuring of the employer, a non-competition agreement is only enforceable during the period in which the employer is paying the employee’s salary, benefits or equivalent compensation, including, without limitation, severance pay.

And fourth, AB 276 overturns a recent Nevada Supreme Court opinion by instructing courts to “blue-pencil,” i.e., trim back, over-broad non-competition agreements. Thus, if the non-competition agreement contains limitations as to time, geographical area or scope of activity that are unreasonable, over-broad, or unduly burdensome, the court must revise the non-competition to the extent necessary and enforce the non-competition agreement as revised.

I believe the main effect of AB 276 will be to prevent courts from quickly rejecting a non-competition covenant on the basis that it is too broad. Rather, in a lawsuit to enforce such an agreement, the court is more likely to need an evidentiary hearing to sort through the factors listed in AB 276 and then to decide whether and how far to trim back the non-competition agreement.

Employers and employees alike will want to review their existing non-competition agreements in light of these changes to Nevada law.

How can an experienced business court attorney help me obtain a favorable settlement of my business dispute?

Business disputes are an unfortunate fact of life. They can result from incorrect assumptions, business set-backs, miscommunication, pride, bullying or greed. Here are some things an experienced business court attorney can do to help you successfully settle your business dispute. As a business dispute begins to develop, you will likely see it coming from a distance. Generally, the sooner you reach out to your business court attorney, the more your attorney can do to assist you.

  1. Analyze the merits of your claim or defense. If you expect to reach a favorable settlement, you need to thoroughly understand the ins and outs of your case as soon in the process as possible. An experienced business court attorney can explain your business rights and the strong points of your case. The business court attorney can also deliver unpleasant news and point out your vulnerabilities.
  2. Analyze your strategic options. Along with advising you about the merits of your position, the experienced business court attorney can familiarize you with the process for litigating, mediating, or arbitrating your claim or defense. Together with your business court attorney, you can also evaluate self-help steps and other options for protecting your rights outside of the court system.
  3. Help you perfect your claim or defense. Some claims are not ready to be settled or litigated even though the business relationship has already deteriorated. As examples, some claims require a formal written demand. Some contracts require notice of breach and an opportunity to cure. To exercise certain shareholder rights, such as compelling a meeting of shareholders or inspecting a corporation’s books and records, you have to line up shareholders holding specific percentages of the company’s shares. Your business court attorney can make sure your ducks are in a row when you assert your rights.
  4. Show you are serious. Showing up with an experienced business court attorney demonstrates that you are committed to fight for your business. Showing your strength puts you in a better position to resolve your dispute.
  5. Document a clear and enforceable settlement agreement. When you and the other party come to an agreement to resolve your business dispute, you need to document that agreement in writing before the other party gets buyer’s remorse. You also need the written agreement to say what recourse you will have if the other party fails or refuses to perform its side of the settlement agreement.

What are the top five reasons to settle a business dispute?

Most business people seek to resolve their business disputes before litigating. If litigation becomes necessary or cannot be avoided, they will continue to seek a business solution. Here are the top five reasons to settle your business dispute:

  1. Control your destiny and contain your risks. When you litigate or arbitrate your case, you put the ultimate resolution of your dispute into the hands of a judge, jury, or arbitrator, all of whom are capable of doing things that surprise you and hurt you.  On the other hand, settling your dispute means that you and your opposing party decide by agreement what the outcome will be.
  2. Settle on a basis that cannot be obtained in court. Courts are limited in the types of disputes they can adjudicate and the types of relief they can award to a prevailing party. In contrast, business owners who settle their disputes are free to use any kind of consideration or inducement in settlement negotiations. For example, settlement agreements can include business terms regarding non-disparagement, confidentiality, dividing items of property that are not involved in the dispute, joint business undertakings, and a host of other items that a judge, jury, or arbitrator may not have the ability to award.
  3. Devote your time, resources, attention, and emotional energy to your business rather than to your dispute. The litigation process consumes substantial amounts of your time, money, attention, and emotional energy. The judge or arbitrator imposes deadlines, discovery requirements, and other obligations. Moreover, many business owners prefer running their business to the stress of re-living past disputes and preparing to testify and be cross-examined in court. Settlements often come about because the parties realize that the litigation process is preventing them from doing what they do best and what brings them the most satisfaction.
  4. Protect your privacy. When you go to court, you are often required by discovery rules to reveal sensitive details about your business to your adversary. Moreover, unless court records are sealed by the judge, anybody can look at them. The sooner in the process that you are able to settle your business dispute, the better able you are to protect your sensitive business information.
  5. Bring finality to your business dispute. Our court system emphasizes due process. But it takes time to give notice to all participants, allow them obtain discovery, consider multiple motions, and conduct a trial. Many judges have thousands of cases on their docket. Even when a winner is declared, the winner must follow post-judgment enforcement procedures. Moreover, appeals may be taken. A well-crafted settlement resolves the business dispute once and for all.

What are the purposes of Nevada Business Court?

The Business Court in Nevada is developed on the Delaware model to minimizes the time, cost and risk of commercial litigation through:

  • Early, comprehensive case management;
  • Active judicial participation in settlement;
  • Priority for hearing settings to avoid business disruption; and
  • Predictability of legal decisions in commercial matters.

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