As we have
previously blogged about, in 2016 the Nevada Supreme Court refused to adopt the “blue pencil” doctrine and held that Nevada courts could not modify over-broad restrictive covenants. The following year, we alerted readers that the Nevada legislature amended Nevada Revised Statute 613, governing non-competition agreements. Among other things, the amendment granted courts the authority to “blue-pencil” non-competition agreements, overturning the Nevada Supreme Court’s 2016 decision in
Golden Road Motor Inn, Inc. v. Islam.
Now, the Nevada Supreme Court chimed in again on the “blue pencil” doctrine. In
Duong v. Fielden Hanson Isaacs Miyada Robison Yeh, Ltd., two doctors signed noncompetition agreements in 2016 in exchange for continued employment subsequent to a merger. The agreements prohibited the doctors from working at certain facilities upon termination of their employment relationship. The agreements notably contained an express blue-penciling provisi
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The Nevada Supreme Court recently addressed the question of whether lower courts may blue-pencil an otherwise unenforceable noncompetition agreement pursuant to a provision in the agreement that allows for court modification to redeem unreasonably restrictive clauses. The court’s decision is instructive not only for Nevada employers but for all businesses that operate in states with similar statutory structures.
Brief History and Background
The question of whether Nevada courts could judicially modify an overbroad noncompetition agreement was seemingly answered in the negative by the Nevada Supreme Court in 2016 (
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Many practitioners in Nevada had been operating under the assumption that the Nevada Supreme Court’s 2016 opinion in
Golden Road Motor Inn, Inc. v. Islam, 132 Nev. 476, 376 P.3d 151 (2016) automatically rendered void and unsalvageable any non-competition agreement entered into prior to the enactment of NRS 613.195(5)[1] in June 2017 that contained a single unreasonable geographic or temporal restriction.. On December 31, 2020, however, the Nevada Supreme Court remedied this misconception by clarifying that parties may contractually consent to blue-penciling[2] of unreasonable or unenforceable non-competition clauses.
Background
Fielden Hanson Isaacs Miyada Robison Yeh, Ltd. (the “Employer”) is a provider of anesthesia and pain management services in Nevada who entered into employment agreements with two anesthesiologists (the “Employees”) in November 2016. The employment agreements contained non-competition
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On December 31, 2020, the Nevada Supreme Court issued an opinion addressing and clarifying several issues relating to the power of the court to reform or modify an unreasonable noncompetition agreement often referred to as blue penciling.
In
Duong v. Fielden Hanson Isaacs Miyada Robison Yeh, Ltd., 136 Nev. Adv. Op. 87 (2020), the employer sought to enjoin two anesthesiologists from breaching noncompetition agreements. After the employer merged with another company in 2016, the anesthesiologists entered into employment contracts that contained a noncompetition provision restricting the anesthesiologists from working at several facilities. The agreement also contained language requesting that, if any provision of the agreement is found unreasonable by a court, “any such provision shall nevertheless be enforceable to the extent such court shall deem reasonable, and, in such event, it is the parties’ intention . . .
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.