Enforcement Of Non-Competition Agreements Through Injunctive Relief In Nevada

In the recent case of Shores v. Global Experience Specialists, Inc. (134 Nev. Adv. Op. 61), the Supreme Court of Nevada determined that the trial court improperly granted a preliminary injunction to enforce a non-compete agreement that was arguably unreasonable as to its geographic scope.

Employee Landon Shores worked as a sales associate for Global Experience Specialists (GES). He was later promoted to a sales manager position where he was responsible for soliciting trade shows and conventions to contract with GES to build show floors and exhibits. Shores was required to sign a Non-Competition Agreement (NCA) as a condition of his promotion. The terms of the NCA prohibited Shores from working in a similar capacity with any of GES’s competitors, anywhere in the United States, for 12 months following the end of his employment with GES. Within just a few months of his promotion, however, Shores accepted a position with one of GES’s competitors in Southern California and GES sought to enforce its NCA through a preliminary injunction.

On appeal, the Court cited its own precedent in Jones v. Deeter, 112 Nev. 291, 913 P.2d 1272 (1996) for the proposition that NCAs are appropriate where they are reasonably necessary to protect the business interests and goodwill of an employer. However, the enforceability of NCAs depend upon an analysis of several factors such as (1) the time duration of the restriction, (2) the geographical scope of the restriction, and (3) the hardship that would be faced by the restricted employee.

In this instance, the Court was focused upon an analysis of the geographical scope of GES’s nationwide restriction on Shores’ ability to seek alternative employment. An important factor in this analysis is that the geographical scope must be limited to areas where the employer actually has established customer contacts and goodwill and not areas the employer has targeted for possible expansion.

GES was seeking to enforce its NCA on a nationwide basis although the evidence established that GES’s clients were limited to essentially one city in each of 33 states, the District of Columbia and Puerto Rico. The trial court was willing to grant a preliminary injunction based on its finding that GES established a “national” scope to its clientele. However, the Supreme Court determined that the trial court’s factual findings disregarded controlling precedents because it effectively permitted GES to restrain Shores’ employment in territories where GES had no established business contacts. Thus, in the Supreme Court’s opinion, GES was unable to demonstrate a likelihood of success on the merits that its NCA was reasonable in scope sufficient to warrant the granting of preliminary injunctive relief.

Surprisingly, although the Supreme Court acknowledged that prior case law may have permitted the trial court to grant a preliminary injunction by narrowing the NCA to a more reasonable geographic scope, the Court noted that GES only sought a preliminary injunction in accordance with the express terms of its nationwide NCA. As a result, the Supreme Court did not address the appropriateness of this alternative, noting “our analysis does not express any opinion about the ultimate merits of whether the NCA itself is reasonable.”

The lesson here is that employers are likely to have greater success enforcing NCAs with a more narrow interpretation, and thus reasonable, geographic scope of established customer contacts rather than overreaching to impose an undue hardship upon the former employee.