Iowa Court Of Appeals Case Demonstrates Methods To Avoid Iowa's At-Will Employment Rule And Noncompete Agreements

On January 10, 2018, the Iowa Court of Appeals issued an employment law decision, Spencer Convenient Healthcare v. McGregor, that shows that employees can increase their rights, which are often pathetic under Iowa law, through careful legal arguments. The case involved two issues of interest. First, could the employee sue her former employer for lost wages after she was fired? Second, was that employee bound by her noncompete agreement?

Spencer Convenient Healthcare (SCH) is an urgent-care medical clinic located in Spencer, Iowa. SCH hired Angela McGregor to be one of its medical providers. The parties executed an employment contract memorializing the terms of McGregor’s employment with SCH. The contract included a termination provision requiring both parties to provide ninety days written notice of any desire to terminate the employment relationship. The contract also included a non-compete clause which, upon termination, prohibited McGregor from working in another clinic within a sixty-mile radius of either SCH or LCH for two years.

An issue between SCH and McGregor arose over SCH's use of outdated medical supplies. SCH refused to stop that practice. Consequently, McGregor filed complaints with federal and state authorities.  

One of SCH's owners, John Lewallen, called the office manager and advised her he recently heard one of the staff members turned SCH in to the State for using expired supplies. In a separate phone call later that day, John advised the office manager that he planned to ask McGregor if she was the one who filed a complaint, that if she responded in the affirmative, “he doesn’t want her back,” and, if she responded in the negative, he “knows she is lying.” The office manager relayed this information to McGregor.  McGregor testified that, upon receiving this information, she realized she may have to start exploring other employment opportunities.

McGregor's employment ended a few days later. Shortly after the separation, McGregor accepted a position with Crown Clinic, another urgent-care provider. In July, Crown Clinic opened its facility near the LCH clinic. Those events led to a lawsuit between SCH and McGregor. One issue in the lawsuit was whether SCH breached the termination provision in McGregor's employment contract. Another issue was whether SCH could enforce the noncompete agreement against McGregor.

After trial, the district court concluded (1) John terminated McGregor’s employment on February 20, 2015; (2) the termination, which was unjust and unfair and was effectuated without proper notice, was a breach of the termination provision contained in the contract; and (3) as such, SCH was not entitled to enforcement of the non-compete clause or an award of damages. On appeal, SCH challenged the district court’s finding that it breached the employment contract. SCH contended that McGregor breached the contract first by voluntarily quitting her position without providing ninety days written notice and, as such, she subsequently breached the contract by violating the non-compete.

The Iowa Court of Appeals rejected SCH's arguments. It determined that McGregor did not voluntarily quit; rather, SCH fired her without complying with the termination provisions in her employment contract. As such, SCH was not entitled to enforcement of the non-compete clause or an award of damages related the noncompete agreement.

There are several lessons for employees from this case. First, when possible have an employment contract that sets forth the circumstances under which the employment can be terminated and the procedures for doing so. Without such provisions in McGregor's employment contract, it would've been more difficult for her to sue for damages. Second, don't quit, no matter how bad things get. Had McGregor quit instead of letting SCH fire her, she, not SCH, would've been in breach of the employment agreement and would've to pay SCH damages. Third, one way to possibly avoid a noncompete agreement is to prove that the employer also breached the employment contract and thus forfeited its right to enforce the noncompete agreement against the employee.

Harley Erbe