What will Strip resorts do when noncompete agreements become illegal?

The violation of a noncompete agreement has been central in Wynn Resorts’ lawsuit against Fontainebleau for poaching senior executives. Wynn claims the new resort hired nine of its executives and encouraged workers to violate their employment contracts.

But in April the Federal Trade Commission changed its rules and announced that starting Sept. 4 all new noncompete agreements are banned.

So, how would a ban impact executive hiring and moves on the Strip?

“(Senior executives) are going do whatever they want to do anyway… I believe it’s going to result in corporations and businesses being more creative in how they draft their compensation to make it disadvantageous to leave a company,” said Gregg Kamer, an attorney with the Kamer Zucker Abbott law firm.

Kamer explains that Strip resorts may delay compensation for senior executives if they work for competitors.

Noncompete agreements are contracts designed to prevent employees from leaving their employer to go work for a competitor or start a new business in the same industry in the same geographical area, said UNLV law professor Ruben Garcia. Noncompete agreements have historically been used to keep senior executives from leaving to work for competitors, bringing along their trade secrets.

“Workers have access to business strategies and patents… (Noncompete agreements) are protection for the employers to protect trade secrets and knowledge,” Garcia said.

Noncompete agreements have become commonplace

Now, noncompete agreements have become commonplace in contracts with employees at all levels.

In Illinois, Jimmy John’s, a sandwich chain, was embroiled in a lawsuit over noncompete agreements that prevented workers from taking jobs with sandwich competitors.

The new ban won’t change much in Wynn’s and Fontainebleau’s dispute over poaching.

All existing noncompete agreements with senior executives will still remain in place, Kristen Gallagher, co-chair of McDonald Carano’s employment and labor law practice, said in an emailed statement to the Las Vegas Review Journal.

“The ban does not prohibit employers from enforcing noncompete clauses if the cause of action accrued prior to the effective date,” she said.

For the average hourly worker on the Strip, there won’t be much of a difference since Nevada law already bans noncompetes for hourly workers, said Swen Prior, a labor and employment attorney for Snell and Wilmer in Las Vegas.

“If you have a commission and hourly structure, you could still enforce a noncompete before (the ban),” he said. However, Prior noted that with the ban, workers paid by commission could see a change in the enforcement of noncompete agreements.

Noncompete ban will be challenged

Garcia expects the new FTC ban to be challenged in courts.

“It is the first of its kind at the federal level. Everything else (on noncompete agreements) has been for state law,” Garcia said.

And so, the biggest question for attorneys and judges to decide on is whether to enforce the ban while the rule is being actively challenged, Prior said.

For Nevada courts, Kamer is convinced that judges won’t enforce noncompete agreement in general.

“The judiciary has always been hostile to noncompetes because it’s noncompetitive. It stops people from moving and stops them from getting other jobs,” he said.

Prior predicts the ban would be overturned in higher courts.

“They just don’t have the substantive rulemaking authority… Even if (the FTC) did have that authority to make this substantive rulemaking, they exceeded the authority that they even had,” Prior said.

Gallagher said employment lawyers are watching for further developments on the noncompete ban, including the next Nevada legislative session which “may give rise to proposals aimed at mirroring the FTC’s ban or impose additional limitations.”

Cara Clarke, vice president of communications at the Vegas Chamber, said the chamber is closely monitoring how the FTC ban impacts the workforce. As a chapter of the U.S. Chamber of Commerce, the local chamber will follow any decisions made by federal advocacy group, she said.

Contact Annie Vong at avong@reviewjournal.com.