Nevada Supreme Court Addresses Noncompete Agreement With Nationwide Scope
By Kamer Zucker Abbott
September 11, 2018
In Shores v. Global Experience Specialists, Inc.(Aug. 2, 2018), the Nevada Supreme Court addressed the reasonableness of a noncompete agreement that prohibited post-employment competition with the employer for one year across the United States. The Court determined that the employer had failed to put forth enough evidence at the preliminary injunction stage of the case to show that the nationwide scope for the noncompete agreement was reasonable.
The plaintiff, Landon Shores, worked as a sales associate for GES for several years. He was promoted to sales manager, a position involving soliciting trade shows and conventions to contract with GES to build show floors and exhibits. As a condition of his promotion, Shores was required to sign a Confidentiality and Non-Competition Agreement. The noncompete agreement prohibited Shores from competing with GES or working in a similar capacity for GES’s competitors for a one-year period following the end of his employment. The noncompete agreement’s geographical restriction covered the United States.
Just a few months later, Shores took a position with one of GES’s competitors in Southern California in a position that was the same or substantially similar to his position at GES. GES sued Shores and sought a preliminary injunction to enforce the terms of the noncompete agreement. GES provided the trial court with a spreadsheet showing that over the last two years it had conducted business with clients in at least one city in 33 states, as well as the District of Columbia and Puerto Rico.
The trial court granted the preliminary injunction, prohibiting Shores’ new employment. It concluded that
GES had put forth sufficient evidence to show that the geographic scope of the noncompete was reasonable.
Shores appealed to the Nevada Supreme Court which disagreed with the trial court. The Supreme Court reiterated existing Nevada law, that the geographical scope of a noncompete agreement must be limited to areas where the employer has a protectable business interest, defined as “established customer contacts and good will.” While GES presented evidence that it had conducted business in 33 states, D.C. and Puerto Rico, this evidence was insufficient, according to the Court, to prove that a nationwide restriction was reasonable.
The Court rejected GES’s argument that this evidence was sufficient at the preliminary injunction stage of the case, where the focus is on the reasonable probability of success on the merits. The Court explained GES may be able to prove at trial that its restriction was reasonable, but that it had not presented enough evidence of reasonableness for a preliminary injunction.
This decision by the Nevada Supreme Court does not change the law in Nevada but highlights the challenges an employer faces in seeking to enforce a noncompete agreement. Injunction proceedings move quickly with little time for preparation. As such, an employer who wishes to take action to protect its interests must be ready to prove the reasonableness of its noncompete restrictions with little notice. The Nevada Supreme Court has made clear that some proof of reasonableness will not be enough; instead, substantial proof will be needed to obtain an injunction.
If you would like assistance in drafting or revising your noncompete agreements, or in gathering and preserving the type of evidence you will need to enforce your agreements, please contact a KZA attorney.
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