It's Time For A Serious Discussion About Noncompete Agreements

Listen everyone. Noncompete agreements under Iowa law are not a joke. They're not some forgotten part of employment contracts that everyone, including employers, ignores. To the contrary, employers take Iowa noncompete agreements very seriously. You should too.

I previously wrote about noncompete agreements here. A noncompete agreement can appear in various forms and still be binding. For employees who have an employment contract, the noncompete agreement often appears right in the contract. Other employees, even those who are at-will and not contract employees, are required to sign a separate noncompete agreement if they want to get or keep a job. That's perfectly legal in Iowa.

Noncompete agreements are generally valid and enforceable in Iowa, same as any other contract. Noncompete agreements are usually upheld as long as they're reasonably necessary for protection of the employer's business, are not unreasonably restrictive of the employee's right to earn a living, and are not against the public interest. Even if any of that's a problem, a court can judicially modify a noncompete agreement to bring it within permissible parameters.

Courts consider several factors in determining whether a noncompete agreement's reasonably necessary for an employer's protection. They'll look at how much competition the employer already has in the marketplace. They'll consider whether the employee received special training or knowledge during the employment. Also important is whether the employee worked in close proximity to the employer's customers and may have a chance to pirate them after leaving the employment. Those are just a few examples of the important factors under the "reasonably necessary" test. The more of them that are present, the more likely that the noncompete agreement will be enforced.

In terms of whether a noncompete agreement's restrictions on an employee are unreasonable, courts primarily look at the noncompete's duration and geographical scope. The noncompete agreement can't last too long or cover too much area. A lesser consideration is whether the employee has any education, skills, or training that would allow the employee to work outside the scope of the noncompete agreement.  

Violation of a noncompete agreement, even conduct that gives the appearance of an actual or potential violation, can have serious consequences. A court can order temporary and permanent injunctive relief against an employee to prevent violations of a noncompete agreement. An employer can also seek money damages for any proved violation of a noncompete agreement. And, for contract employees, most employment contracts have an attorney fee provision that allows the employer to recover attorney fees and expenses if successful in legal action regarding a noncompete. All of that is serious stuff.

Another fun thing that employers do outside the legal system is send warning letters to various people about a former employee's noncompete agreement. If an employee goes to work for a competitor in violation of a noncompete agreement, there's a good chance that the former employer will have its lawyers send the new employer a letter notifying it of the existence of the noncompete and leveling an implied, or sometimes explicit, threat of litigation if the employee isn't immediately fired. That usually results in the end of that employee's time with the new employer.

Noncompete agreements can also prohibit former employees from establishing a competing business. If a former employee tries that, a common reaction from the former employer is lawyer letters to the competing business's customers, vendors, partners, etc. Similar to the letter described in the preceding paragraph, except the former employee sees business dry up rather than the end of a job.   

Please feel free to contact us if you need the assistance of a Des Moines employment lawyer.

Harley Erbe