January 7, 2021

Nevada Supreme Court Holds That Courts Can Modify Non-compete Agreements

The Nevada Supreme Court held that courts may change or “blue-pencil” an unreasonably restrictive non-compete agreement  to make it enforceable if the agreement contains a provision allowing the modification of unenforceable terms.

In Duong v. Fielden Hanson Isaacs Miyada Robison Yeh, Ltd., 136 Nev. Adv. Op. 87 (2020), two anesthesiologists entered into a non-compete agreement with their employer in 2016 that contained a clause allowing modification of unenforceable provisions. After they left their employer, the anesthesiologists began providing  services to others, in violation of the noncompete agreement. The district court found that the noncompete agreement was unreasonably overbroad, modified the unenforceable terms, and granted an injunction to enforce the modified agreement. The anesthesiologists appealed, arguing that the district court did not have authority to revise the  agreement.

The Nevada Supreme Court affirmed the district court’s decision. The court distinguished the facts of the case from Golden Road Motor Inn, Inc. v. Islam, 132 Nev. 472, 488 (2016) where the court held that an unenforceable term in a non-compete agreement could not be modified because the agreement in  the Golden Road did not contain a clause permitting modification. Conversely, the agreement in Duong did contain a clause permitting revision. Accordingly, the district court did not abuse its discretion by modifying and enforcing the agreement.

Notably, after Golden Road, the Nevada State Legislature passed NRS 613.195(5) (effective June 3, 2017), which requires courts to revise unreasonable noncompete agreements and enforce the revised agreement. The court’s decision in Duong applies to agreements that pre-date the enactment of the statute. The court did not address whether NRS 613.195(5) applied retroactively.

Companies should consult with a Nevada attorney when drafting non-compete agreements to ensure that they are enforceable under Nevada law.

Contact Payne & Fears LLP if you have any questions about these changes or non-compete agreement related issues.