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Nevada Supreme Court Holds It is Not the Role of the Judiciary to "Blue Pencil" a Noncompete Agreement to Make it Enforceable


Golden Road Motor Inn Inc. v. Islam - Nevada Supreme Court


Facts:  Casino host Sumona Islam ("Islam") entered into agreements with her employer Atlantis Casino Resort Spa ("Atlantis") to refrain from employment association or service with any other gaming establishment within 150 miles of Atlantis for one year following the end of her employment.  Another agreement restricted Islam from sharing confidential information, disseminating intellectual property, and downloading or uploading information without authorization.  During her time at Atlantis, Islam altered and concealed the contact information for 87 players in Atlantis' electronic database, hand copied players' names, contact information, and other proprietary information.  Islam ultimately left her position with Atlantis and went to work for another gaming establishment.  Although Islam was instructed not to bring anything from Atlantis, Islam used certain player information that she had copied from Atlantis' database.

Atlantis subsequently became aware that Islam was working for a competitor and informed Islam's new employer of the non-compete and the prohibition of using any information Islam may have brought with her.  Atlantis ultimately filed a complaint against Islam and her new employer.  At trial, the district court ultimately held that the noncompete agreement was unenforceable.  Atlantis appeald the ruling that the noncompete was not enforceable. 

Holding:  Atlantis argued that even if the noncompete agreement was held to be unenforceable as written, the agreement should be preserved by judicial modification (also known as "blue penciling").  Islam and her new employer countered with the argument that blue penciling the agreement was improper and the entire agreement should be voided.  

The Nevada Supreme Court noted that under Nevada law, an overly broad term that prohibits an employee from employment, affiliation, or service with a competitor, which extends beyond what is necessary to protect the former employer's interests, is unreasonable and renders the noncompete agreement wholly unenforceable.  In this case, the Supreme Court held that a court's role is to interpret contracts, not write them.  Consequently, altering a contract, even minimally, would conflict with the impartiality that is required of a court.  Based upon the facts in this case, the Court pointed to the fact that since the noncompete was overly broad, the entire agreement was unenforceable as written (and the Court would not entertain the notion of blue penciling the agreement).

Judgment:  The Nevada Supreme Court held that the noncompete agreement was overly broad as written and therefore unenforceable.  Further, the Court held that it is not the role of the judiciary to "blue pencil" an agreement to eliminate the overly broad portions and make the agreement enforceable.

The Takeaway:  Noncompetes are always a favorite topic of mine.  This case was very interesting in so much that the Nevada Supreme Court adopted an "all or nothing" approach to the enforceability of noncompete agreements.  Perhaps that is not the only intriguing part of this ruling.  In fact, I think the fact that the Supreme Court declined to adopt the "blue pencil" rationale is quite significant.  While some court might agree that the judiciary can alter noncompetes as needed to make them enforceable, the Supreme Court in Nevada was quite clear in its position that the judiciary should not assume this role.  I think that part of the Court's ruling is perhaps the most significant takeaway from the opinion.  As always, employer's should be ever mindful of the fact that noncompetes are viewed differently in every state...and even in states where noncompetes are allowed, a court's ruling can drastically impact the validity of these agreements going forward. 

Majority Opinion Judge:  Judge Douglas

Date:  July 21, 2016

Opinion:  http://caseinfo.nvsupremecourt.us/public/caseView.do?csIID=32534

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