ExecutiveLoyalty.org

U.S. - Nevada

NOTE: all of the information opposite the bullets below is quoted from Accelerated Care Plus Corp. v. Diversicare Management Services, D. NE (8/22/2011).

Restrictive Covenants - Generally

Nevada law allows for the enforcement of reasonable restrictive covenants in employment agreements, and recognizes that a valid, restrictive covenant may be enforced by way of temporary and permanent injunctive relief. See Nev. Rev. Stat. § 613.200. Restrictive employment covenants must be enforced if the terms are reasonable with respect to the time limitation, geographical territory, and hardship on the respective parties. See Jones v. Deeter, 913 P.2d 1272 (Nev. 1996) (establishing the factors to consider in employment noncompetition covenants: time, territory and hardship); Hansen v. Edwards, 426 P.2d 792 (Nev. 1967) (holding that the time period and
geographic territory must be considered in determining the reasonableness of the restrictive covenants).

Restrictive Covenants - Duration

Here, the Roumen and Pannell Agreements provide restrictive covenants which prevent Roumen and Pannell from competing with ACP, soliciting employees of ACP, and inducing customers to curtail their business with ACP. All of the restrictive covenants run for a period of one year from the date of termination of employment. Thus, Roumen and Pannell are required to refrain from engaging in such activity during the pendency of their employment and for a one year period after termination: June 3, 2011 through June 3, 2012 for Pannell and August 4, 2011 through August 4, 2012 for Roumen. The Court finds that the one-year period is reasonable, under these circumstances, and Nevada courts have upheld restrictive covenants for even longer periods. See Ellis v. McDaniel, 596 P.2d 222 (Nev. 1979) (upholding a two-year restrictive covenant). Here, Roumen and Pannell were key employees of ACP who have gained extensive knowledge of ACP’s treatment methods, Written Materials, and business strategy and models. In light of their knowledge of the industry, training received during their affiliation and employment with ACP, and access to ACP’s confidential information, a one-year restrictive covenant period is reasonable to protect ACP’s legitimate business interests.

Restrictive Covenant - Geographic Scope

With respect to the geographic scope of the Roumen and Pannell Agreements, the Nevada Supreme Court has recognized that the geographic scope of a restrictive covenant should be no greater than reasonably to protect the employer’s legitimate business interests. See Hansen, 426 P.2d at 793. In the case of a localized or regional business, a geographic limitation in a restrictive covenant would reasonably address any possible harm that employer may suffer. However, courts have recognized that when an employer’s business is national in scope, an unlimited geographical scope may be reasonable so long as the field is sufficiently limited. See Lowry Computer Prods., Inc. v. Head, 984 F. Supp. 1111, 1116 (E.D. Mich. 1997) (upholding one-year non-competition clause of unlimited geographic scope where employer had accounts in forty-eight states and where clause was limited to competing businesses); Quaker Chem. Corp. v. Varga, 509 F. Supp. 2d 469, 477 (E.D. Pa. 2007) (upholding one-year non-competition and confidentiality agreement of unlimited geographic scope where employer was international enterprise). Indeed, as the Third Circuit has astutely recognized, “[i]n this Information Age, a per se rule against broad geographic restrictions would seem hopelessly antiquated.” Victaulic Co. v. Tieman, 499 F.3d 227, 237 (3d Cir. 2007). The court noted that many courts have found broad geographic restrictions reasonable “so long as they are roughly consonant with the scope of the employee’s duties.” Id.

Here, while the restrictive covenants of the Roumen and Pannell Agreements have no geographic scope, they are tailored to prohibit subsequent employment in a similar position with a similar or competitive business. ACP is a national business in all states except Alaska, and both Roumen and Pannell are currently employed in the same regions in which they worked for ACP anyway. Should ACP’s confidential information (known by employees such as Roumen and Pannell) be used in competition against it, ACP’s business could be affected anywhere. Moreover, within the realm of Restricted Employers, Roumen and Pannell may accept a position
so long as their “job responsibilities and functions do not relate in any way to the goods and services that are the same as or similar to the goods and services provided by ACP,” and so long as they do not “disclose any of a type ACP Information in the course of his or her employment with the Restricted Employer.” Hence, in this instance, the scope of the non-competition clause is reasonable and roughly consistent with the scope of Roumen and Pannell’s duties while employees of ACP.

Trade Secrets - Misappropriation  

"In order to establish a claim for misappropriation of trade secrets under Nevada law, ACP must show: (1) a trade secret; (2) misappropriation of the trade secret through use, disclosure or non-disclosure or use of the trade secret; and (3) the misappropriation was wrongful because it was made in breach of an express or implied contract or by a party with a duty not to disclose. See Frantz v. Johnson, 999 P.2d 351, 358 (Nev. 2000). ACP has not established a likelihood of proving that its treatment methods constituted trade secrets. Although customer lists and particular applications to particular customers may constitute trade secrets, the Court finds it unlikely that the methods of using certain equipment constituted trade secrets."