Court Opinion

ID: 9785838
Source: CourtListenerOpinion
Date Created: 2023-08-30 22:41:18.932547+00
Date Added: 2024-06-11T07:36:09.827562
License: Public Domain

Pickering, J.,
concurring:
I concur in the majority’s decision to limit Traffic Control Services v. United Rentals, 120 Nev. 168, 87 P.3d 1054 (2004), to the asset sale setting, despite the range of its dicta. I write separately to emphasize NRS 613.200(4), which Traffic Control mentions only briefly, and the majority’s opinion does not cite. This statute sets controlling Nevada public policy. It provides that restrictive covenants in Nevada employment agreements are enforceable so long as “the agreement is supported by valuable consideration and is otherwise reasonable in its scope and duration.” NRS 613.200(4). But for the stare decisis respect due Traffic Control, in my estimation judicial analysis of the enforceability of restrictive covenants in the merger and acquisition setting should begin and end with NRS 613.200(4).1 In other respects, such covenants should be judged by the same rules as apply to contracts generally.
*209As the federal district court’s certification order reflects, Traffic Control can fairly be read to apply to all changes in an employer’s ownership, whether accomplished by asset sale, dissolution, merger, or stock sale. Thus, Traffic Control frames the question presented as “whether noncompetition covenants may be assigned from one employer to another through the medium of an asset sale {or otherwise).” 120 Nev. at 172, 87 P.3d at 1057 (emphasis added). It answers the question in equally broad terms: “Covenants not to compete are personal in nature and therefore are not assignable absent the employee’s express consent. Further, an employer must obtain such consent through arm’s-length negotiation with the employee, supported by valuable consideration beyond that necessary to support the underlying covenant.” Id. at 176, 87 P.3d at 1060.
Whether an employer’s business is transferred by asset sale, as opposed to merger or stock sale, should make little difference to an affected employee, if that information is even known. Nonetheless, to explain its narrow reading of Traffic Control, the majority distinguishes between asset sales and other forms of corporate acquisition, finding no “assignment” in rights that succeed by merger as distinguished from asset sale. While I agree with the majority, what I respectfully submit is missing from its analysis are the policy reasons for disavowing Traffic Control’s dicta.
There are a number of reasons to limit Traffic Control to its stated facts. First, its “personal services” rationale is questionable, given that “the ‘personal’ nature of an employment contract ends following termination” and has little application to modern employment relationships. Sogeti USA LLC v. Scariano, 606 F. Supp. 2d 1080, 1084, 1086 (D. Ariz. 2009) (criticizing Traffic Control and predicting the Arizona Supreme Court would reject its holding); see AutoMed Technologies, Inc. v. Eller, 160 F. Supp. 2d 915, 924 (N.D. Ill. 2001) (noting that, while “[a]n employee has a clear interest in controlling for whom he works ... the identity of the party enforcing a restrictive covenant should make little difference to a former employee” challenging a restrictive covenant).
Second, the criteria set out in NRS 613.200(4) and in similar law elsewhere for determining the enforceability of restrictive covenants are better suited to the job of assessing the fairness of enforcing re*210strictive covenants than corporate law distinctions between mergers, stock acquisitions, and asset sales. See Sogeti, 606 F. Supp. 2d at 1085. These criteria focus on the employment relationship itself, not the transactional or corporate means by which a change in the parties to that relationship occurs: Did the change in employer, however accomplished, materially change the scope of the restrictive covenant for which consideration was given, making its enforcement unreasonable? This is the right question to ask, regardless of how the successor came to stand in the original employer’s shoes. Nonetheless, under Traffic Control as narrowed by the majority’s opinion, in an asset sale setting, pre-acquisition restrictive covenants are not enforceable without new consideration and employee consent (unless the preexisting contract specifies free assignability), whereas in the merger or stock acquisition setting, they are. And this is true whether the new employer is a whale devouring a minnow or a retiring parent transferring a small business to a daughter or son, and without regard to the consideration given for the original covenant.
Third, contract law normally allows assignment of contract rights unless assignment is prohibited by express contract term, statute, or public policy, or the particular circumstances of the case are such that allowing substitution materially varies the burden or risk of performance. Restatement (Second) of Contracts § 317 (1981). Traffic Control’s “holding that restrictive covenants may never be assigned without consent” thus reverses the normal common law rule allowing assignment and imposes “new public policy restrictions on contract rights.” See AutoMed, 160 F. Supp. 2d at 924, cited with approval in Sogeti, 606 F. Supp. 2d at 1086. In the 1995 amendments to NRS 613.210(4), the Legislature set public policy to govern creation and enforcement of restrictive covenants in contracts that apply to Nevada businesses with Nevada employees. This is a valid exercise of legislative prerogative. Cf. Edwards v. Arthur Andersen LLP, 189 P.3d 285, 292-93 (Cal. 2008) (rejecting a Ninth Circuit decision suggesting California courts would judicially adopt a “narrow-restraint” exception to California statute that, unlike Nevada’s, invalidates restrictive covenants unless a specific statutory exception applies; and noting that it would “leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint [statutory] rule”). By imposing additional requirements, beyond those stated in the statute, Traffic Control unsettles normal contract-law-based expectations that the Legislature intended to foster.
Finally, as the employer conceded at argument, avoiding invalidation under Traffic Control’s per se rule is only a first step; the court will still have to assess whether the contract, viewed in light of the new, post-merger day, satisfies NRS 613.200(4). Today’s case apparently does not present conflicts between Nevada and other *211states’ laws. But as the Vermont law analyzed by the majority, ante n.4, suggests, we can expect that issue to visit next. The question becomes whether the multilayered analysis our decisional law now requires adds anything beyond complexity and delay to fair and efficient dispute resolution in this arena. I submit that it does not.

The 1995 Legislature added paragraph 4 to NRS 613.200 “to make it clear that the statute of Nevada does not prevent th[e]se kind of reasonable contracts from existing.” Hearing on S.B. 128 Before the Senate Comm, on Commerce *209and Labor, 68th Leg. (Nev., Feb. 24, 1995) (comments of Senator Raggio). Reportedly, the Legislature was concerned that if Nevada did not permit such contracts to protect trade secrets and clients, businesses would choose not to operate in this state. Id. The Legislature considered whether the statutory limitations afforded employees sufficient protection and concluded that they did. “These kinds of contracts have to have valuable consideration. These types of covenants are enforceable; they do not involve involuntary servitude if they are supported by valuable consideration, if they impose no greater restraint on the employee than necessary to protect the business and goodwill of the person.” Id.