Golden Rd. Motor Inn v. Islam
2016 NV 49 (2016)
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Rule of Law:
Under Nevada law, a non-compete agreement containing an unreasonable provision, such as an overly broad restriction on the type of work prohibited, constitutes an unreasonable restraint of trade and is wholly unenforceable. Nevada courts will not judicially modify or "blue pencil" an overbroad non-compete agreement to make it reasonable.
Facts:
- Sumona Islam worked as a casino host for Golden Road Motor Inn, Inc., operating as Atlantis Casino Resort Spa (Atlantis).
- Islam signed a non-compete agreement prohibiting her from being 'employed by, in any way affiliated with, or provid[ing] any services to, any gaming business or enterprise located within 150 miles' of Atlantis for one year after her employment ended.
- Becoming dissatisfied with her work, Islam altered the contact information for 87 players in Atlantis's electronic database and also hand-copied proprietary player data into notebooks.
- Islam resigned from Atlantis and accepted a position as a casino host at a competing casino, Grand Sierra Resort (GSR).
- GSR personnel had instructed Islam not to bring any materials from her former employer.
- Despite these instructions, Islam entered the player information she had copied from Atlantis into GSR's database.
- Islam represented to GSR that the information was from her own personal 'book of trade.'
- GSR used the information provided by Islam to market to players who were customers of Atlantis.
Procedural Posture:
- Atlantis filed a complaint in the Second Judicial District Court of Nevada against Sumona Islam and Grand Sierra Resort (GSR).
- The district court issued a temporary restraining order prohibiting Islam from employment with GSR.
- The parties subsequently stipulated to a preliminary injunction pending the resolution of the case.
- After a bench trial, the district court ruled that the non-compete agreement was unreasonable and therefore unenforceable.
- The district court found Islam liable for breach of other contractual provisions and violation of the Nevada Uniform Trade Secrets Act, but found her not liable for conversion.
- The district court found GSR not liable for tortious interference with contractual relations or misappropriation of trade secrets.
- All three parties appealed various aspects of the district court's judgment and attorney fee awards to the Supreme Court of Nevada.
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Issue:
Does a non-compete agreement that prohibits a former employee from any type of employment, affiliation, or service with any competing business constitute an unreasonable restraint of trade, thereby rendering the entire agreement unenforceable?
Opinions:
Majority - Douglas, J.
Yes, a non-compete agreement that prohibits any type of employment with a competitor is an unreasonable restraint of trade and is wholly unenforceable. The provision restricting Islam from any employment, affiliation, or service with any gaming enterprise is overly broad because it extends beyond what is necessary to protect Atlantis's legitimate business interests and imposes an undue hardship on Islam. For example, it would prohibit her from working as a custodian. Citing its precedent in Jones v. Deeter, the court reaffirmed that Nevada law does not permit 'blue-penciling' or reforming private contracts that contain unreasonable restraints of trade. If a key provision in a non-compete agreement is unreasonable, the entire agreement is void. The court distinguished prior cases that allowed modification of preliminary injunctions from its long-standing refusal to rewrite the terms of an underlying contract.
Dissenting - Hardesty, J.
No, the court should not have invalidated the entire agreement but instead should have modified the overly broad provision to make it reasonable, which is the majority approach in other jurisdictions. The parties' clear intent was to restrict Islam from working as a competing casino host, and the court had the power to reform the contract to reflect that specific, reasonable intent. Invalidating the entire agreement represents an antiquated, 'draconian' all-or-nothing rule that ignores the equities of the case, particularly given that Islam admittedly stole trade secrets from Atlantis. The court should have balanced the parties' interests rather than voiding the contract entirely due to a drafting overbreadth.
Analysis:
This decision solidifies Nevada's strict, all-or-nothing approach to the enforceability of non-compete agreements, explicitly rejecting the more flexible 'blue pencil' or reformation doctrines followed by a majority of states. The ruling places the full burden on employers to draft narrowly tailored and reasonable restrictive covenants, as any single overbroad term will void the entire agreement. This precedent provides greater protection for employee mobility and discourages employers from using overly aggressive, in terrorem clauses, but it also reduces protection for employers even in cases involving clear employee misconduct.
