Summary
The Nevada Supreme Court reversed and remanded an order denying a preliminary injunction sought to enforce a noncompete covenant against former employees. The court held that the covenant's placement within the employment agreement created, at most, minimal procedural unconscionability, and that the district court must analyze whether the covenant's overbroad restrictions can be revised under NRS 613.195(6). The court explained that revision is required when possible but does not permit a court to create an entirely new contract.
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Practice areas
Questions Presented
- Whether the noncompete covenant was procedurally unconscionable and unenforceable because its formatting caused it to be easily overlooked.
- Whether the covenant's overbroad geographic scope made it substantively unconscionable as written.
- Whether NRS 613.195(6) requires a district court to revise an overbroad noncompete covenant when revision is possible, and whether the statute permits the court to rewrite or create a new covenant.
- Whether the district court adequately considered revision of the covenant under NRS 613.195(1) and (6).
Holdings
- The formatting and circumstances surrounding the employment agreement established, at most, minimal procedural unconscionability and did not independently invalidate the noncompete covenant. A provision merged into the preceding paragraph is not automatically unenforceable where the agreement used the same font size throughout and the employees failed to show that they lacked a meaningful opportunity to review or assent to the agreement.
- The covenant was overbroad in its geographic scope and therefore substantively unconscionable as written, but overbreadth alone did not make it permanently unenforceable if the covenant could be reasonably modified without imposing undue hardship or a restraint greater than necessary to protect the employer.
- NRS 613.195(1) and (6), read together, do not require a district court to always modify an overbroad noncompete covenant, but the court must modify an overbroad covenant when reasonable revision is possible.
- NRS 613.195(6) authorizes revision of an existing noncompete covenant but does not authorize a court to rewrite the covenant, redraft it, or create a new contract for the parties.
Key quotations
“For reasons discussed below, we conclude that NRS 613.195(1) and (6), taken together, do not require a district court to always modify an overbroad noncompete covenant; however, the district court must modify an overbroad noncompete covenant when possible.” (7)
“NRS 613.195(6) calls for a court to "revise" the noncompete covenant—not to rewrite or redraft it.” (9)
“But overbreadth alone will not render the covenant unenforceable if the restrictions can be modified under subsection (6) so that they are reasonable and do not impose an undue hardship on the employee or a restraint greater than necessary for the employer's protection.” (9)
Factual background
When respondents were hired, Tough Turtle classified them as independent contractors; after a change in ownership, they were reclassified as employees and signed employment paperwork that did not contain a noncompete. Several years later, respondents received and signed an employment agreement containing a noncompete provision that was merged into the preceding paragraph and duplicated the number of the following paragraph. Scott later allegedly started Foxtail Turf, while DeGregorio and Sager occasionally worked for Foxtail while still employed by Tough Turtle; Scott resigned and the other respondents were subsequently fired.
Procedural history
Tough Turtle sued its former employees and other parties and sought injunctive relief enforcing the employees' noncompete covenants. After a seven-day evidentiary hearing, the district court concluded that the covenant was procedurally unconscionable, also found it overbroad and substantively unconscionable, and declined to modify it. Tough Turtle appealed. The Nevada Supreme Court reversed and remanded for the district court to determine whether the covenant could be revised under NRS 613.195(6).
Remand instructions
The district court must determine whether the noncompete covenant can be modified under NRS 613.195(6). If it is modifiable, the district court should revise the covenant so that it is reasonable under NRS 613.195(1). The district court may also address the unclean-hands defense in the first instance.