Blowing the Whistle on Employers: Differing Federal and State Approaches

By Laura Thalacker and Amy Baker

© 2013 This article was originally published in the printed magazine COMMUNIQUÉ, the official publication of the Clark County Bar Association. (April 2013, Vol. 34, No. 4). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, Attn: COMMUNIQUÉ Editor-in-Chief, 725 S. 8th St., Las Vegas, NV 89101. Phone: (702) 387-6011.

In recent years, protections under federal law for whistleblowers has expanded, while on the state level in Nevada, employees still face significant hurdles in successfully pursuing whistleblower claims.

New federal protections for whistleblowers
In November 2012, President Obama signed legislation giving greater protection to federal employees who “blow the whistle” and accuse their employers of engaging in illegal conduct. The Whistleblower Protection Enhancement Act of 2012 (WPEA), which applies exclusively to federal employees, was enacted in response to judicially-created loopholes that removed protection to whistleblowers in a number of scenarios.

In addition to the WPEA, the federal government in recent years has adopted other laws aimed at protecting whistleblowers. The Fraud Enforcement and Recovery Act of 2009 made several amendments to the Federal False Claims Act, 31 U.S.C. §§ 3729-33  (FCA) and, in 2010, the Patient Protection and Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act added further amendments to the FCA. With expanded protection for whistleblowers, the U.S. Department of Justice collected a record $5 billion in civil FCA settlements and judgments in 2012. The U.S. Securities and Exchange Commission also paid out its first award under its whistleblower program when it paid $50,000 to an anonymous tipster who helped uncover a multi-million dollar fraud.

The Internal Revenue Service (IRS) has its own whistleblower program, which can award up to thirty percent of collected proceeds to individuals who help uncover tax evasion and fraud. In 2012, the IRS awarded $104 million to a former UBS AG banker who provided prosecutors with information regarding a tax evasion scheme by the bank. The banker admitted participating in the scheme, even confessing to an instance of sneaking diamonds into the U.S. in a toothpaste tube. While still incarcerated for the crime, he received the massive $104 million payout from the IRS. While it may seem strange that a convicted felon could be paid such a huge award related to the same crime he committed, there is nothing in the federal law that precludes it so long as the person did not plan or initiate the tax evasion.

Nevada whistleblower protections
Many states have followed the federal government’s lead and expanded whistleblower protections in recent years, often through reform of state FCA laws. The federal government provides financial incentives for states to bring their FCA laws into compliance with the federal FCA. While Nevada has its own FCA, it has not been amended to bring it into compliance with the recent amendments to the federal FCA. Unless Nevada amends its FCA by August 31, 2013, the state will lose financial incentives provided by the federal government.

Nevada has statutes that apply to state and local government employees who report government waste or wrongdoing, codified in NRS 281.611 to 281.571. These laws protect government officers and employees who report improper government activities from retaliatory action. The Nevada Supreme Court has also granted whistleblower protection to employees in the private sector under the common law theory of tortious discharge in violation of public policy. The rationale of this judicially-created claim is to encourage reporting of illegal conduct by protecting employees from retaliation for making such a report. However, as the case law demonstrates, private sector employees in Nevada face significant hurdles in successfully pursuing a claim for wrongful termination under this theory. Although a general presumption of at-will employment applies in Nevada, the Nevada Supreme Court has recognized an exception to this rule when an employee’s termination violates established public policy. See Hanson v. Harrah’s, 100 Nev. 60, 675 P.2d 394 (1984). In 1989, the Nevada Supreme Court determined that whistleblowing activity that serves a public purpose is one of the very limited circumstances that should be covered under the “public policy” exception to at-will employment. Accordingly, employers who discharge an employee in retaliation for whistleblowing may be liable for the tort of wrongful discharge. See Wiltsie v. Baby Grand Corp., 105 Nev. 291 (1989). 774 P.2d 432

In Wiltsie, the Nevada Supreme Court held that an employee reporting illegal or unsafe practices has a valid claim only if the employee’s actions are “not merely private or proprietary.” This means that when an employee blows the whistle internally (for example, to a supervisor or manager rather than to appropriate outside authorities), the activity is not protected and there is no recourse for the whistleblowing employee for alleged retaliation, even if the employer was in fact engaging in wrongful activity.

State courts in Nevada and federal courts applying Nevada law have continuously and strictly upheld the holding in Wiltsie that an employee’s conduct must not be “private or proprietary.” For example, in Schlang v. Key Airlines, Inc., 794 F. Supp. 1493 (D. Nev. 1992), the whistleblowing employees were pilots who reported their employer’s alleged violation of certain Federal Aviation Administration Regulations (FAAR) to air traffic control and the National Mediation Board. The employees also recorded violations in aircraft log books. The court held that the employees could not establish a claim of tortious discharge in violation of public policy because they had not reported the violations directly to the Federal Aviation Administration (FAA). In so holding, the court found the employees were acting in a private or proprietary manner and rejected their argument that their conduct constituted external reporting because the employer was required to inspect the log books and report FAAR violations to the FAA.

In some circumstances, even whistleblowing to an external agency may not be enough. For example, in a 2012 unpublished decision, the Nevada Supreme Court denied recovery under a tortious discharge theory where the employees did not know the conduct they were reporting was illegal at the time they discussed it with a governmental agency and because no attempt at a formal complaint was made. Ainsworth v. Newmont Min. Corp., 2012 WL 987222 (March 20, 2012). According to the court, the employees had not engaged in affirmative activity to expose an illegal or unsafe practice to further the public good. Although the employees urged the court to expand whistleblowing protections to cover their internal reporting of violations to company management, the court refused to expand the law to cover such conduct. Six months later, when faced again with the opportunity to expand whistleblower protection to include internal reporting, the Nevada Supreme Court declined to do so. See Whiting v. Maxim Healthcare Services, Inc., 2012 WL 4051184 (Sept. 13, 2012) (unpublished).

In addition to the limitations established in Wiltsie and subsequent decisions, Nevada cases impose further barriers on whistleblowers claiming tortious discharge because employees cannot recover under a “mixed motive” theory. To recover for retaliatory discharge, employees must prove that the whistleblowing activity was the proximate cause of the discharge. See Allum v. Valley Bank of Nevada, 114 Nev. 1313, 970 P.2d 1062 (1998). Thus, any legitimate reason an employer can identify as a basis for the employee’s termination will make it difficult, if not impossible, for an employee to recover. In fact, even if whistle-blowing was a motivating cause for termination, an employer who has other legitimate reasons for termination will not be liable to a whistleblower for tortious discharge in violation of public policy.

As recent legislation and case law makes clear, federal protections for employee whistleblowers are expanding, while whistleblowing employees in Nevada face significant hurdles in establishing retaliation claims.

Laura Thalacker is a shareholder at Lionel Sawyer & Collins, practicing in the firm’s litigation department. Laura’s practice is focused on labor and employment law and she is the immediate past chair of the Nevada State Bar’s labor and employment section. She can be reached at (702) 383-8947 or lthalacker@lionelsawyer.com.

Amy Baker is a 2010 graduate of the William S. Boyd School of Law and is an associate at Lionel Sawyer & Collins practicing in the litigation department. She can be reached at (702) 383-8933 or abaker@lionelsawyer.com.


What Attorneys and Their Clients Need to Know about Employment Verification and Form I-9 Compliance

By Airene Williamson

© 2013 This article was originally published in the printed magazine COMMUNIQUÉ, the official publication of the Clark County Bar Association. (April 2013, Vol. 34, No. 4). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, Attn: COMMUNIQUÉ Editor-in-Chief, 725 S. 8th St., Las Vegas, NV 89101. Phone: (702) 387-6011.

The Immigration Reform and Control Act (IRCA) of 1986 was the first and most comprehensive legislation in United States immigration policy to take on the issue of unauthorized migration, to regulate migrants already in the country, and to enforce stronger mechanisms to prevent unauthorized new entries. In the realm of business, an employer will be sanctioned for three types of illegal activities under the IRCA: 1) the knowing hiring of persons not authorized to work in the United States; 2) the continued employment of persons not authorized to work; and 3) the hiring of an individual without verifying or correctly documenting the person’s identity and eligibility to work legally in the United States.

Increasing crackdowns on employer verification forms
One of the byproducts of the IRCA is to require employers to document that the employer has met its IRCA obligations. The I-9 Form, or Employment Eligibility Verification Form, is the document used by employers to verify employees’ identities and to establish that workers are eligible to accept employment in the United States. Employers are legally required to have employees complete the I-9 Form and provide original supporting documents to establish the identity and eligibility of any individual hired to perform work for an employer in the United States.

However, since the enactment of IRCA, employers have consistently failed to comply or failed to fully appreciate the importance of the law in terms of Form I-9 compliance. With the increase in federal government crack downs on noncompliant I-9s, attorneys and their employer clients need to take immediate steps to get documentation in order. Officials with the U.S. Department of Homeland Security, specifically U.S. Immigration and Customs Enforcement (ICE), has stated that its strategic plan through 2014 is to continue targeting employers by pursuing “effective worksite enforcement.” This includes civil and criminal enforcement, as well as holding accountable individual executives, managers, and former managers who hired illegal workers and employees.

Setting up I-9 effective compliance procedures
At a minimum, attorneys should advise employers to have the following basic I-9 compliance procedures in place:

  • Employer should require every new employee to complete the top portion (Section 1) of the I-9 form on the first day of work. If the employee refuses to do so, he should not be permitted to resume working until this is completed.
  • In most cases, the new employee must provide documents that show his employment eligibility by the end of the third day of work. If the employee fails to do so, he should not return to work until the documents are provided.
  • The employee should be permitted to provide any acceptable document or combination of documents listed on the Form I-9 (requesting specific documents can be considered discriminatory). Likewise, an employer must treat all employees in a consistent manner and not discriminate on the basis of citizenship status or national origin in employment eligibility matters.
  • If an employee is not a U.S. citizen or permanent resident, the employer must note when that person’s employment authorization expires and calendar to re-verify employment eligibility prior to that date.
  • All I-9 forms should be kept separate from all other personnel or payroll records.Employers should designate and train specific individuals to handle I-9 compliance with trained back-ups. Even if an employer only employs authorized workers, it can still be liable for significant fines for failure to properly maintain paperwork.
  • Employers should not ignore letters from the Social Security Administration (SSA) stating a particular employee’s Social Security Number does not match SSA records. These are often referred to as “no match” letters. The receipt of such a letter might indicate that an employee is not authorized to work, thereby putting an employer on constructive notice. An employer should follow up on these matters after consulting with counsel.

Common pitfalls in I-9 compliance
There are several common mistakes and human errors that can be made while completing and maintaining I-9 records. If an employer fails to correctly complete or maintain I-9 documentation, that employer may fall out of compliance with ICE rules and face severe financial penalties.

  • Incorrect or missing forms

Common I-9 documentation mistakes include incorrect dates, missing signatures, transposed information, and incomplete check boxes. It is also possible for an employer to fail to complete an I-9 form altogether or misplace a completed form during filing.

Be careful, however. If an employer asks for too many identifying documents from list A or lists B and C, that could expose the employer to discrimination allegations. Asking for too few documents could result in an incomplete form violation.

 

  • Invalid identifying documents or failure to reverify

For employees of certain citizenship status, employers will need to track and update the employee’s supporting I-9 documentation. For example, at the time of hire, a work-authorized alien will provide documentation showing their eligibility to work in the United States. This supporting documentation includes an expiration date and it is the employer’s responsibility to monitor that date and request new documentation prior to expiration.

It is extremely time-consuming to manually track the expiration dates for supporting documentation and remind workers to provide updated documents in a timely fashion. Employees can easily slip through the cracks unverified and cause the company to be out of compliance.

 

  • Out of compliance with the three-day rule

The Form I-9 must be completed within three business days of the date employment commences. This means that the employee must complete section one of the form, provide identification documents, and have those documents verified by the employer, all within three business days. If an employer fails to meet the three-day deadline, it could result in hefty fines.

If the new hire claims that the necessary documents were lost, stolen, or destroyed, the person must provide a receipt for replacement documents within the three days. If an employee has presented a receipt for a replacement document, he or she must produce the actual document within 90 days of the date employment begins.

 

  • Improper document maintenance

ICE rules require employers to maintain I-9 forms either one year after the date of termination, or three years after the date of hire, whichever is greater. Purging outdated I-9 forms can help businesses to free up storage space and also helps to protect the sensitive information of previous employees. If an employer fails to destroy I-9 forms within the outlined time frame, then that employer will be subject to fines.

Furthermore, if an employer is audited and has not destroyed outdated I-9 documentation, any errors found on those outdated forms will also be subject to fines. It becomes a challenge for many businesses to track hire dates against termination dates and then take on the laborious process of calling up old I-9 documents to be individually destroyed.

E-verify
E-verify is a program operated by the Department of Homeland Security in conjunction with the SSA. It is a web-based system that allows businesses to determine the eligibility of their employees to work in the United States by comparing an employee’s Social Security Number and other information against millions of government records. After Arizona’s state-wide mandate on e-verify use was upheld by the U.S. Supreme Court in Chamber of Commerce v. Whiting, 563 U.S. ___, 131 S. Ct. 1968 (2011), a number of states embraced the program and many more are considering similar mandates. At this time, Nevada does not require e-verification.

Potential penalties
Employers may be subject to fines for substantive and uncorrected technical violations. ICE has the power to determine if an employer knowingly hired or continued to employ unauthorized workers. If so, the employer may be fined and, in certain situations, may be prosecuted criminally.
Procedural consistency is critical to protect the company from discrimination claims that may arise as a result of an untrained employee going beyond the procedural and substantive I-9 rules.

Finally, accuracy is of extreme importance for purposes of Form I-9 compliance. Employers often complete forms but fail to pay attention to detail. Proper completion requires knowledge of complex and often confusing rules and diligence to maintain accuracy and uniformity.

By advising employer clients on how to institute effective Form I-9 compliance procedures, attorneys and their employer clients can prevent potential liability and mitigate many potential violations. Attorneys should advise their business clients to implement I-9 procedures that result in accurate, consistent, and uniform preparation, maintenance, and, ultimately, disposal of the forms. In addition, employers, in the context of Form I-9 compliance, must be aware of potential pitfalls, assess their legal exposure, educate managers on legal risks, and adopt human resource practices that identify and prevent liability.

Airene Williamson is the managing shareholder of Williamson Law Office, PLLC. Williamson represents clients in various business transactional and litigation matters, bankruptcy, and immigration. She can be reached at (702) 445-2711 or awilliamson@wlawoffice.com.


Employee Rights and Responsibilities under Disability Discrimination

By Amy M. Rose

© 2013 This article was originally published in the printed magazine COMMUNIQUÉ, the official publication of the Clark County Bar Association. (April 2013, Vol. 34, No. 4). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, Attn: COMMUNIQUÉ Editor-in-Chief, 725 S. 8th St., Las Vegas, NV 89101. Phone: (702) 387-6011.

Disabled employees in Nevada are granted rights and responsibilities under several different federal and state laws. The core federal law protecting disabled employees is the Americans with Disabilities Act, ADA (42 U.S.C. § 12101 et seq. Additionally, the federal Rehabilitation Act, 29 U.S.C. § 701 et seq., provides substantive rights to disabled employees of the federal government, and the Family Medical Leave Act (FMLA), 29 U.S.C. § 2601 et seq., provides protected leave to certain disabled employees. Nevada state law, specifically NRS 613.310 et seq. also provides rights to disabled employees and closely mirrors the ADA.

Before discussing employees’ rights and responsibilities, however, there are a few gatekeepers to the application of these laws. First, an employee has no cause of action under the ADA or NRS 613.310 et seq., unless they work for an employer that employs 15 or more employees. Second, an employee does not have rights under the FMLA unless the employer has employed 50 or more employees for the past 20 calendar work-weeks, within 75 miles of the employee’s worksite. 29 U.S.C. § 2611 (2)(B)(ii), (4)(A)(i). Third, for an employee to have a cause of action nder the Rehabilitation Act, they must work for the federal government, a federal contractor, or a program receiving federal funds. 29 U.S.C. §§ 794(a), 793(a).

This article provides a brief overview of some of the more important rights and responsibilities of disabled employees under these statutes.

Rights

Right to work in an environment free of discrimination or harassment based on employee’s disability

This is the most obvious and basic right of disabled employees. Disability discrimination laws were enacted with this end goal in mind – to protect employees from being treated differently merely because of a disability. Disability discrimination can come in the form of a denial of a promotion, unequal pay, termination, or other adverse action. Harassment includes derogatory comments, slurs, jokes, etc., about or directed at an employee’s disability that are so severe and/or pervasive that it interferes with the employee’s ability to work. An employee also has the right to be free of unnecessary inquiries into the nature or severity of his or her disability.

It is important to note that the ADA defines a disability as “(1) having a physical or mental impairment that substantially limits one or more major life activities, (2) having a record of such impairment, or (3) being regarded by the employer as being disabled.” 42 U.S.C. § 12101(1)(emphasis added). If this sounds broad – it is. Under this definition, if an employee is not actually disabled, but an employer perceives the employee to be disabled and discriminates or harasses the employee based on this belief, then this employee may still have a cause of action under the ADA.

Right to work in an environment free of discrimination because of association with a disabled person

The ADA gives rights to employees who are associated with a disabled person. It is prohibited to take an adverse employment action against an employee “because of the known disability of an individual with whom the qualified individual is known to have a relationship or association.” 42 U.S.C. § 2112(b)(4). This type of discrimination may occur, for example, if an employee’s spouse becomes disabled and the employer terminates the employee because the spouse is covered by the company’s health insurance.

Right to take FMLA leave without interference or retaliation

Under the FMLA, an employee with a serious health condition who needs to take leave from work has a right to do so, without penalty, termination, or retaliation. 29 U.S.C. §2612(a)(1)(D).  Often, an employee’s serious health condition also constitutes a disability. Thus, the employee may take protected leave under the FMLA. In most circumstances when an employee returns from leave, they must be reinstated to the same or an equivalent job.

Right to request a reasonable accommodation and engage in “interactive process”

The ADA and the Rehabilitation Act provide a disabled employee the right to request a reasonable accommodation from the employer, which will enable the employee to perform the essential functions of the employee’s job. 42 U.S.C. § 12111(8)(9). For example, if an employee has chronic back pain, the employer may need to provide the employee with a special chair. If an employee experiences migraine headaches, the employer may need to reduce visual and sound distractions by installing sound absorbing panels or by moving the employee to a quieter  workspace.

When working to find a reasonable accommodation, employees have the right to engage an employer in what is called “the interactive process.” An employer must thereby work with the employee to determine the employee’s limitations, discuss how a reasonable accommodation would help, identify possible accommodations, and consider the employee’s preference in selecting the reasonable accommodation. 29 C.F.R. § 1630.9 App. (2005).

Right to complain about harassment and discrimination, without retaliation
An employee has the right to oppose any practice made unlawful under the ADA, the Rehabilitation Act, NRS § 613.310 et seq., or FMLA without fear of retaliation. An employee does not have to be disabled to be protected by these retaliation provisions. Any employee, whether disabled or not, who has complained to the employer about plausible disability discrimination, or who has testified, assisted, or participated in an investigation of a violation has the right to be free from retaliation after doing so.

Responsibilities
Inform employer of disability and need for an accommodation

A disabled employee has the right to a reasonable accommodation but must first inform the employer of the disability and request a reasonable accommodation. The employee bears the initial burden of offering an accommodation that is reasonable to the employer. The burden is shifted, however, under certain circumstances, if the employer independently knows the employee needs an accommodation. Brown v. Lucky Stores, 246 F.3d 1182 (9th Cir. 2001).

Provide basic verification of need for accommodation if asked

If the need for a reasonable accommodation is not obvious, an employer may request limited medical documentation from the employee evidencing the disability and the employee has a responsibility to comply. 29 C.F.R. § 1630.9 App. (2005). According to the U.S. Equal Employment Opportunity Commission (EEOC), “sufficient documentation,” shows the nature and severity of the disability, the activities limited, and the extent of the limitations. EEOC Enforcement Guidance No. 915.002., 7/27/00.

If taking FMLA leave, provide medical certification, take fitness for duty exam, if requested

Similar to requesting a reasonable accommodation, if an employee takes leave under the FMLA because of a serious health condition, the employer may request medical certification by a health care provider and the employee has a responsibility to comply. 29 U.S.C. § 2613(a).
Additionally, when an employee plans to return from FMLA leave, the employer may require that the employee certify his or her ability to perform the essential functions of the job, commonly known as a “fitness-for-duty” exam. 29 U.S.C. § 2614(a)(4).

When taking FMLA leave, give proper and timely notice

When an employee’s need to take leave under the FMLA is foreseeable – such as a planned surgery – the employee must provide the employer with at least 30 days notice, the reason, and the dates of leave. However, when it is impossible to provide 30 days notice, or the leave is not foreseeable, an employee must provide notice as soon as practicable. Additionally, an employee is usually required to utilize the employer’s call-in procedures when taking unforeseeable FMLA leave. 29 U.S.C. § 2612(e), 29 C.F.R. § 825.303(c).

This is just a brief glimpse into the complicated world of disability discrimination law. An employee facing discrimination should consult with a knowledgeable attorney to further understand his or her rights.

Amy M. Rose is an attorney at Esteban-Trinidad Law, P.C. where she and the firm focus mainly on employment law. Amy would be happy to answer any questions you may have about disability discrimination law. She can be reached at amy@ltrinidadlaw.com.

 


Restrictive Covenants and Trade Secrets

By Brian C. Whitaker and Chad D. Olsen

© 2013 This article was originally published in the printed magazine COMMUNIQUÉ, the official publication of the Clark County Bar Association. (April 2013, Vol. 34, No. 4). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, Attn: COMMUNIQUÉ Editor-in-Chief, 725 S. 8th St., Las Vegas, NV 89101. Phone: (702) 387-6011.

Convenient data storage devices and other means of transferring information can be a nightmare for employers hoping to protect trade secrets. Potentially misappropriated trade secrets can include nearly any “information . . . that . . . [d]erives independent economic value . . . from not being generally known to, and not being readily ascertainable . . . by the public or any other persons who can obtain commercial or economic value from its disclosure or use.” NRS 600A.030(5).

The failure to take steps to protect sensitive information may result in the loss of trade secret protection, which may compromise competiveness and innovation. In Frantz v. Johnson, the Nevada Supreme Court made it clear that, in determining whether information is entitled to trade secret protection, courts will consider “the extent and manner in which the employer guarded the secrecy of the information.” 116 Nev. 455, 999 P.2d 351, 358–59 (2000).

Restrictive covenants between employers and employees, even at-will employees, provide a simple way for employers to help protect trade secrets. Such restrictive covenants often include four components: non-competition, client non-solicitation, non-disclosure, and invention assignment.

Non-competition
While Nevada law permits employers to use non-compete components, the law requires that such agreements be “supported by valuable consideration and . . . otherwise reasonable in its scope and duration.” NRS 613.200(4); see generally Camco, Inc. v. Baker, 113 Nev. 512, 936 P.2d 829, 832 (1997) (“[A]n at-will employee’s continued employment is sufficient consideration for enforcing a non-competition agreement.”). To illustrate, in Hansen v. Edwards, a podiatrist and his Reno-based employer entered into an agreement that prohibited the podiatrist from “engag[ing] in the practice of surgical chiropody within a radius of 100 miles of Reno on the termination of employment.” 83 Nev. 189, 426 P.2d 792, 793 (1967). No time limit was mentioned. Id. The court reasoned that a non-compete provision is “unreasonable . . . if it is greater than is required for the protection of the [employer] . . . or [if it] imposes undue hardship upon the person restricted.” Id. In the end, the court held that the non-compete provision was unreasonable and modified the provision to “a confinement of the area of restraint to the boundary limits of the City of Reno and a time interval of one year.” Id. at 794.

Other case law shows that determining reasonable scope and duration is a fact-sensitive inquiry. See, e.g., Traffic Control Servs. v. United Rentals Northwest, Inc., 120 Nev. 168, 87 P.3d 1054, 1055–56 (2004) (illustrating a reasonable provision that provided a one-year duration and 60 mile radius); Camco, Inc., 113 Nev. 512, 936 P.2d at 832 (invalidating a provision that provided a 50 mile radius and five-year duration, and reasoning that territorial restrictions must be limited to areas where the employer “established customer contacts and good will”); Jones v. Deeter, 112 Nev. 291, 913 P.2d 1272 (1996) (striking down a non-compete provision that provided a 100 mile radius and a five-year duration); Ellis v. McDaniel, 95 Nev. 455, 596 P.2d 222, 224 (1979) (upholding a non-compete provision that prohibited competition within two years after termination and within five miles of the city limits). In sum, “[t]here is no inflexible formula for deciding the ubiquitous question of reasonableness.” Ellis, 95 Nev. 455, 596 P.2d at 224.

Client non-solicitation

The second component often included in restrictive covenants is client non-solicitation. See, e.g., Pinnacle Performance v. Hessing, 17 P.3d 308, 311 (Idaho 2001) (“[E]mployers are entitled to protect their businesses from the detrimental impact of competition by employees who, but for their employment, would not have had the ability to gain a special influence over clients or customers.”); Dam, Snell & Taveirne, Ltd. v. Verchota,  754 N.E.2d 464, 470 (Ill. Ct. App. 2001) (reasoning that employers have a “protectable interest in preventing its former employees from both soliciting and performing . . . work on behalf of its . . . clients”).

There is no Nevada case law showing a standard that applies exclusively to client non-solicitation agreements. It seems, therefore, that the reasonableness standard that is applied to non-compete agreements will also apply to client non-solicitation agreements. In fact, in Shainin II, LLC v. Allen, “the parties agree[d] that there is no Nevada case law on whether a non-competition agreement is reasonable if it prohibits an employee from soliciting or performing services for any of the former employer’s clients.” 81 U.S.P.Q. 2d (BNA) 1129 *16 (W.D. Wash. 2006). The court then concluded that it “has little basis to find that the Nevada Supreme Court would uphold a non-competition clause that bars an employee from performing services for any of an employer’s clients, without regard to geographic location or whether the employee himself had performed services for the client.” Id. at 17–18.

In Fillpoint, LLC v. Maas, the court held that the client and employee non-solicitation terms in an employment agreement were “too broad” after finding that the “agreement even barred . . . solicitation of potential customers.” 146 Cal. Rptr. 3d 194, 204 (Cal. Ct. App. 2012). The court stated that, at the employee’s expense, the agreement unreasonably extended the anticompetitive reach of the employer beyond its established good will. Id.; see also Seabury & Smith, Inc. v. Payne Fin. Group, Inc., 393 F. Supp. 2d 1057, 1063 (E.D. Wash. 2005) (finding one-year restriction on working with former clients to be reasonable); W. R. Grace & Co., Dearborn Div. v. Mouyal, 422 S.E.2d 529, 532 (Ga. 1992) (“[T]he prohibition against post-employment solicitation of any customer of the employer located in a specific  geographic area is . . . unreasonable . . . .”).

Non-disclosure and invention assignment
Courts generally perceive non-disclosure and invention assignment agreements favorably because they do not restrict an employee’s ability to work or find employment. See Revere Transducers, Inc. v. Deere & Co., 595 N.W.2d 751, 761 (Iowa 1999) (“Nondisclosure-confidentiality agreements enjoy more favorable treatment in the law than do noncompete agreements” because “noncompete agreements are viewed as restraints of trade which limit an employee’s freedom of movement among employment opportunities.”). Accordingly, a court is likely to enforce such an agreement if unambiguous and reasonable. See Ringle v. Bruton, 120 Nev. 82, 86 P.3d 1032, 1039 (2004) (“[W]hen a contract is clear, unambiguous, and complete, its terms must be given their plain meaning and the contract must be enforced as written . . . .”).

For instance, in Revere Transducers, the court applied the reasonableness test to non-disclosure and invention assignment agreements by balancing the low burden placed on the employee with the need to protect the employer’s business. 595 N.W.2d at 762. Specifically, the court stated,

the following test should be applied in determining whether a nondisclosure-confidential or invention assignment agreement is enforceable:
(1) Is the restriction prohibiting disclosure reasonably necessary for the protection of the employer’s business;
(2) is the restriction unreasonably restrictive of the employee’s rights; and
(3) is the restriction prejudicial to the public interest?

Id.

In the end, the court held that the agreements were enforceable. Id. at 763.
In Traffic Control Servs., the Nevada Supreme Court stated:

Employers commonly rely upon restrictive covenants, primarily nondisclosure and noncompetition covenants, to safeguard important business interests. “The non-disclosure covenant limits the dissemination of proprietary information by a former employee, while the non-competition covenant precludes the former employee from competing with his prior employer for a specified period of time and within a precise geographic area.

120 Nev. 168, 87 P.3d at 1057 (2004).

These restrictive covenants, however, are subject to intense judicial scrutiny. See Sheehan & Sheehan v. Nelson Malley & Co., 121 Nev. 481, 117 P.3d 219, 225 (2005) (“[W]e strictly construe the language of covenants not to compete; and in the case of an ambiguity, that language is construed against the drafter.”). Further, modern technology makes transferring sensitive business information both effortless and nearly unnoticeable.

It is imperative, therefore, that employers and their counsel carefully draft restrictive covenants. Failing to provide adequate safeguards may lead to the loss of trade secret protection. See Frantz, 116 Nev. 455, 999 P.2d at 358–59 (protecting customer and pricing information as a trade secret because, inter alia, the employer guarded “its secrecy”); see generally Saini v. International Game Technology, 434 F. Supp. 2d 913, 919 (D. Nev. 2006) (“[D]isclosure of confidential information or trade secrets” creates serious harms, “which are not readily addressed through payment of economic damages”).

Brian C. Whitaker is a partner at Woods Erickson Whitaker & Maurice, LLP. Mr. Whitaker represents clients in various business, real estate, and litigation matters.

Chad D. Olsen is an associate at Gerrard Cox Larsen and a graduate of J. Reuben Clark Law School, Brigham Young University. Mr. Olsen focuses his practice on litigation.