Nevada Supreme Court Refuses To Enforce Casino's Noncompete Agreement

Volume 15, Issue 18
August 4, 2016

On July 21, 2016, the Nevada Supreme Court ruled in Golden Road Inn, Inc. v. Islam that the Atlantis Casino Resort Spa's noncompetition agreement with a casino host was unenforceable.

Courts generally disfavor noncompete agreements and similar forms of restrictive covenants because they restrain free trade and commerce. However, Nevada law expressly allows agreements that restrict a departing employee from "pursuing a similar vocation in competition with or becoming employed by a competitor" if the agreement is "supported by valuable consideration and otherwise reasonable in its scope and duration." If a noncompete agreement places greater restraints on the employee than is reasonably necessary to protect the employer's legitimate business interests, it will not be enforced.

Atlantis' noncompete agreement with the casino host prohibited her from working in any capacity for another gaming operation within 150 miles of Atlantis for one year following the end of her employment. The Nevada Supreme Court determined that the "agreement's prohibition of all types of employment with gaming establishments severely restricts Islam's ability to be gainfully employed." Accordingly, the Court found the noncompete limitation to be overbroad and unreasonable.

The Court also adamantly refused to modify the agreement by narrowing the noncompete limitation to the reasonable restriction of working as a casino host for a competitor. Modifying the parties' agreement to remove invalid language is often referred to as "reforming" or "blue penciling" a contract. The Court rejected this practice, finding, in part, that blue penciling favors employers and encourages them to use excessive restrictions. The Court made clear that an employer who "over-reaches" in its noncompete agreement risks losing the ability to enforce any level of restriction on competition.

The Nevada Supreme Court's refusal to blue pencil the Atlantis agreement is a surprising rejection of a principle used in many other jurisdictions. Indeed, the dissenting opinion in this case contended that "[o]nly a few jurisdictions still use" "the draconian all-or nothing rule" of invalidating an entire agreement if any part of the noncompete limitation is unlawful.

This pro-employee decision mandates that Nevada employers ensure their noncompete agreements are drafted as narrowly as possible. If you would like assistance with updating your noncompete agreements or have questions about this case, please contact a KZA attorney.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.