Jones v. Deeter - Winter Street Law Group

This office participated in the seminal case of Jones v. Deeter, 112 Nev. 291(1996) regarding the enforceability of non-compete agreements in the State of Nevada.

 

BACKGROUND

In 1993 Mark Deeter employed Larry Jones as an assistant in Mr. Deeter’s business. Mr. Deeter is mainly a supplier of lighting equipment; however, he also performs lighting services including retrofitting.

Without professional assistance, Mr. Deeter personally drafted a non-compete agreement that Mr. Jones signed as well as an employment contract. Pursuant to the agreement, Mr. Jones agreed not to compete with Mr. Deeter in the lighting retrofitting business for five years within a 100–mile radius of the Reno/Sparks area after the employment relationship terminated. In exchange, Mr. Deeter agreed an increase in pay. If Mr. Jones did compete by working with a competitor or starting his own business, the liquidated damages clause provided that Mr. Jones would pay Mr. Deeter $50,000.

Mr. Deeter terminated Mr. Jones three months after Mr. Jones started his position. The next day, Mr. Jones contacted a competitor of Mr. Deeter’s. While Mr. Jones never became an actual employee of this competitor, Mr. Jones became an independent salesman for commercial lighting products for the competitor. Mr. Jones then solicited business in the Reno area, but did not gain any actual customers from the solicitation but the competitor still paid Mr. Jones $750 in compensation for his efforts.

 

SUMMARY

Mr. Deeter filed a lawsuit against Mr. Jones the competitor Mr. Jones went to work for to enforce the non-compete agreement, including the liquidated damages provision, and alleging misappropriation of trade secrets. Mr. Jones filed an answer and a counterclaim against Mr. Deeter alleging interference with a prospective economic relationship causing financial damage. Following a hearing before the District Court, Mr. Deeter obtained a preliminary injunction enjoining Mr. Jones from violating the non-compete agreement and enjoining the competitor from employing Mr. Jones. Thereafter, Mr. Deeter and the competitor entered into an agreement dismissing the competitor from the lawsuit.

Mr. Jones then sought judgment as to each of Mr. Deeter’s claims for relief and Mr. Deeter also sought judgment in his favor. In its order, the District Court found that: (1) the covenant not to compete was reasonable and enforceable; (2) Mr. Jones had violated the terms of the covenant; (3) the $50,000 liquidated damages provision was “an amount meant to punish” Mr. Jones and instead awarded damages of $3,500; and (4) Mr. Deeter’s claim for misappropriation of trade secrets was not supported by the facts. Mr. Jones appealed arguing that the District Court made a mistake by enforcing the restrictive covenant.

 

CONCLUSION

The issue before the Nevada Supreme Court was whether the covenant not to compete was reasonable. The Court stated that a restrictive covenant on employment will be upheld only if it is reasonably necessary to protect the business and goodwill of the employer and the amount of time the covenant lasts, the territory it covers, and the hardship imposed upon the person restricted are factors for them to consider in determining whether a covenant is reasonable. The Court ultimately decided that the restrictive covenant prohibited Mr. Jones from competing with Mr. Deeter within a 100–mile radius of Reno/Sparks for five years after leaving Mr. Deeter’s employ and concluded as a result that, the covenant was not reasonable and therefore, unenforceable.

 

Read the opinion here.

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