A Comprehensive Guide to Starting a Nevada Business While Navigating a Non-Compete Agreement and the Nevada Trade Secrets Act

We hear this question often: “Can I leave my current job and start my own business if I signed a non-compete agreement?”

The better question is not simply whether the employee can compete. The better question is how the employee plans to compete.

A non-compete agreement is not automatically enforceable just because an employee signed it.  A non-compete must not impose any unreasonable restraint, NRS § 613.195, and may not impose undue hardship on the employee NRS § 613.195.

But that does not mean an employee can simply leave, take the employer’s customers, use the employer’s information, recruit the employer’s workforce, and start competing the next day.

That is where the Nevada Trade Secrets Act becomes critical.

Even if a non-compete agreement is weak, limited, or unenforceable, a former employee can still face serious liability for misusing trade secrets, confidential business information, customer lists, pricing information, vendor information, internal processes, proprietary systems, or other information learned through the prior employment. In many cases, the real lawsuit is not about the non-compete. It is about trade secrets, solicitation, and whether the former employee improperly used the former employer’s information to launch the new business.

This article provides a practical guide for employees, executives, sales representatives, managers, and business owners who want to leave a Nevada employer and start a competing business without creating unnecessary legal exposure.

The Common Scenario

The typical situation looks like this.

An employee has worked in an industry for years. The employee is skilled, experienced, and believes he or she can do the job better independently. The employee wants to start a new company. Maybe the employee also wants to bring over a few coworkers. Maybe the employee wants to continue serving customers he or she worked with for years.

Then the employee remembers the agreement signed at the beginning of employment. It may include a non-compete provision, a non-solicitation provision, a confidentiality clause, a trade-secret provision, or all of the above.

Now what?

The employee should slow down, review the agreements, identify the legal risks, and build the new business in a way that minimizes the chance of a lawsuit in a creative and innovative way.

Step One: Have an Attorney Review the Non-Compete Agreement

The first step is to have an attorney review the actual agreement.

Non-compete agreements are not all the same. Some restrict employment with a competitor. Others restrict ownership of a competing business, customer contact, geographic areas, or a specific period of time.

Whether a Nevada non-compete is enforceable depends on the language of the agreement and the facts surrounding the employee’s departure and future business plans. The key issues are usually whether the restriction is reasonable, whether it protects a legitimate business interest, whether it prevents the employee from earning a living, and whether the employee plans to solicit or serve former customers.

Because each situation is fact-specific, an employee should not assume the agreement is enforceable or unenforceable without legal review.

Step Two: Review the Non-Solicitation, Confidentiality, and Trade-Secret Provisions

Most employment agreements do not contain only a non-compete clause. They often include non-solicitation provisions, confidentiality provisions, return-of-property provisions, and trade-secret provisions.

Those provisions may create separate obligations even if the non-compete itself is limited or unenforceable.

For example, an agreement may attempt to prohibit the former employee from soliciting:

The employer’s customers;

The employer’s employees;

The employer’s vendors;

The employer’s referral sources; or

The employer’s business opportunities.

The agreement may also require the employee to return all company documents, devices, passwords, files, data, price lists, sales materials, proposals, contracts, customer lists, and other company property.

This matters because many disputes arise from what happens before the employee leaves. A former employer may file suit if it believes the employee downloaded files, emailed customer lists to a personal account, copied pricing information, contacted customers before resigning, recruited employees while still employed, or used confidential information to set up the new business.

The employee’s conduct before departure often becomes the most important evidence in the case.

Step Three: Build a Specific Business Plan Before Launching

Before launching the new business, the employee should prepare a detailed business plan.

This is not just financial exercise. It is a legal risk exercise.

The plan should identify what the new business will do, how it will get customers, what vendors it will use, what employees or contractors it may hire, what information it will rely on, what software or systems it will use, what pricing it will offer, and how it will market itself.

Then the employee and attorney should examine each part of the plan and ask: “Did this come from the employee’s general skill and experience, or did it come from the former employer’s protected information?”

That distinction is critical.

An employee is generally allowed to use his or her general knowledge, skill, experience, relationships, and industry understanding. But the employee cannot use the former employer’s trade secrets or confidential information.

A simple example is the recipe for Kentucky Fried Chicken. If a former employee steals the secret recipe and uses it to start a competing business, that is an obvious misuse of trade secrets.

But most trade-secret problems are less obvious.

The risk may involve customer lists, pricing formulas, vendor terms, internal margins, sales strategies, marketing data, bid information, proprietary processes, software, operational systems, or other information the employee learned only because of prior employment.

Step Four: Be Careful with Former Customers

Former customers are one of the biggest risk areas.

Employees often believe that the customers they serviced are “their” customers. That is not always true. In many cases, the customers legally belong to the employer, especially if the employee learned of those customers, serviced them, or developed the relationship through the employment.

For example, assume a sales representative worked for a Nevada company for 20 years. The sales representative built an extensive customer list during that employment. The customers may know and trust the sales representative personally. But if those customers were developed through the employer’s business, the employee may create legal exposure by taking the list and soliciting those customers for the new company.

That does not mean every former customer is automatically off limits forever. The analysis depends on the agreement, the source of the relationship, whether the customer information is confidential or readily ascertainable, and whether the employee solicited the customer.

A useful exercise is to identify each customer the employee hopes to serve and document how the employee knows that customer.

Did the employee know the customer before working for the employer?

Was the customer a personal contact before employment?

Did the customer come from the employer’s database?

Did the employee first meet the customer through the employer?

Did the employee service the customer as part of the employee’s job duties?

Did the employee use the employer’s records to contact the customer?

Did the customer independently reach out after learning about the new business?

If the employee learned of the customer solely through the prior employment, the safest approach is usually hands off unless an attorney determines otherwise.

Step Five: Understand the Difference Between Solicitation and Passive Competition

There is a difference between competing and soliciting.

An employee may be allowed to start a business, build a website, advertise publicly, attend trade shows, run online ads, publish social media content, and compete in the marketplace. That is different from directly contacting the former employer’s customers and asking them to move their business.

For example, the former employee should generally avoid communications like:

“Hi, I’m leaving and starting my own company. I’d love for you to come with me.”

That type of communication is solicitation.

By contrast, if the former employee launches a website, advertises generally, and a former customer independently reaches out, the analysis is different. Nevada law recognizes that, in certain circumstances, an employer may not restrict a former employee from providing service to a former customer who voluntarily chooses to seek services from the former employee without solicitation.

That distinction is important, but it is also fact sensitive. The former employee should document how the contact occurred, who initiated it, what was said, and whether any confidential information was used.

Step Six: Do Not Take Company Property or Information

This should be obvious, but it is one of the most common mistakes.

Before leaving employment, the employee should not download, copy, email, print, photograph, transfer, or retain company materials for use in the new business.

That includes:

Customer lists;

Contact databases;

Pricing information;

Internal financial records;

Vendor lists;

Employee lists;

Proposals;

Contracts;

Templates;

Training materials;

Marketing plans;

Business plans;

Software data;

Passwords;

Source code;

Product designs;

Operational processes; and

Any other confidential or proprietary company information.

Even if the employee believes he or she created the document, the employer may own it if it was created during employment and within the scope of the employee’s duties.

A clean break is usually the best protection. Return company property. Do not keep company files. Do not use company devices for the new business. Do not forward company data to a personal email account. Do not keep access to company systems after departure.

Step Seven: Be Careful Recruiting Employees

Employee solicitation can also create risk.

If the employment agreement prohibits soliciting employees, the former employee needs to understand what that provision actually says. Even without a written agreement, a former employer may still claim improper conduct if the employee recruited coworkers using confidential information, planned the new venture while still employed, disrupted the employer’s workforce, or breached duties owed during employment.

This does not mean a former employee can never hire anyone from the prior employer. But the process should be handled carefully.

The new business should avoid using confidential employee lists, compensation information, internal personnel data, or targeted recruiting based on information learned only through the prior employment. The employee should also avoid coordinating departures while still employed in a way that could be characterized as disloyal or damaging to the employer.

Step Eight: Document Everything.

Documentation is critical.

No one can stop a former employer from filing a lawsuit. Even a weak lawsuit can be expensive to defend. The goal is to create a record that shows the employee acted properly.

If a former customer reaches out to the new business, document who initiated the contact. Save the email, voicemail, website inquiry, form submission, or message. If the customer found the new business through a website, advertisement, referral, or public source, document that.

If the employee knew a customer before working for the employer, document that history.

If the employee develops new customers through public advertising, networking, trade shows, referrals, social media, or independent outreach to non-protected prospects, document that too.

The more valuable the employee was to the former employer, the more important this becomes. Valuable employees are more likely to be accused of taking value with them. Good documentation can help show that the employee competed lawfully.

Step Nine: Budget for a Potential Dispute

Even if the employee does everything correctly, litigation is still possible.

A former employer may sue to enforce a non-compete, seek an injunction, allege trade-secret misappropriation, claim customer solicitation, claim employee solicitation, or accuse the former employee of taking confidential information.

This can be especially true when the employee was a high producer, worked in sales, managed key accounts, had access to confidential information, or is entering a highly competitive market.

Before launching, the employee should budget for possible legal expenses. The new company should also consider whether it needs insurance, whether the entity is properly formed, whether its operating agreement is complete, whether it has separate bank accounts, and whether it has policies in place to avoid the misuse of any former employer’s information.

Step Ten: Consider Whether to Negotiate Before Departure

In some cases, it may be prudent to discuss the planned departure with the employer before leaving.

This approach has risks. The employer may terminate the employee immediately. The employer may refuse to negotiate. The employer may become suspicious. But in the right case, a written agreement before departure can reduce uncertainty and avoid litigation.

For example, the parties may agree on which customers are off limits, which customers are not restricted, whether certain employees may be hired, what information must be returned, and whether the employer will waive or narrow certain restrictions.

This should not be done casually. The employee should consult counsel before approaching the employer, especially if the employee has not yet resigned.

Final Thoughts

Starting a Nevada business while navigating a non-compete agreement, non-solicitation obligations, confidentiality duties, and the Nevada Trade Secrets Act can be complicated. But it can be done with careful planning.

The key is to distinguish between lawful competition and unlawful use of the former employer’s protected information.

A former employee can use general skill, experience, talent, work ethic, and industry knowledge. But the employee should not use the former employer’s trade secrets, confidential information, customer lists, internal data, or proprietary systems to build the new company.

Before leaving employment or launching a competing business, the employee should have the relevant agreements reviewed, create a clean business plan, avoid taking company information, document how customers are obtained, and prepare for the possibility of a dispute.

If you are considering starting a Nevada business and are concerned about a non-compete agreement, non-solicitation agreement, confidentiality provision, or trade-secret issue, Dragon Law Group can help you evaluate the risk and create a plan before problems arise.

This article is for general informational purposes only and does not constitute legal advice. Every situation is different. If you need legal advice,

regarding your specific facts and agreements