Covenants Not to Compete

Employers have a legitimate interest in safeguarding their business and good will. They sometimes seek to protect that interest by requiring employees to sign a covenant not to compete if the employment relationship is ever terminated. In many cases, the risk of losing customers, patients, or clients to a departing employee is very real. However, a covenant not to compete is a restraint of trade and will not be enforced in accordance with its terms unless those terms are reasonable. Covenants that merely seek to punish an employee for leaving will not be upheld.

To be enforceable in Nevada, covenants restricting competition must be reasonable in terms of both geographical scope and duration. While there simply aren’t any bright line rules, a good rule of thumb is generally no more than 1 to 2 years and no broader than the city or county in which the employee is employed. In any case, the restriction should not be any greater than is reasonably necessary to protect the business and good will of the employer, and the territorial restriction should be limited to the area in which the employer has already established customers, contacts, and good will.

Other factors to consider are whether the covenant will cause undue hardship to the employee and whether it will have any negative impact on the public as a whole. For instance, if the covenant effectively deprives the employee of his livelihood or effectively deprives the public of a valuable specialty service, a court will be reluctant to enforce it.

Restrictive covenants incident to the sale of business (i.e., non-competes signed by departing business owners in favor of the remaining owners) are not so heavily scrutinized as post-employment covenants, since the concern about protecting livelihood isn’t so great. Nevertheless, many of the same principles still apply.

Regardless of the proposed restrictions, a well-drafted non-compete contains several important provisions that substantially increase the likelihood that it will be enforced as written. To fully protect your interests in that regard, consult a qualified attorney.