Many employers ask new employees to sign a non-compete agreement or covenant, in which the employee agrees not to operate a competing business or work for a competitor for a stated period of time within a certain geographic area after the employment relationship ends. In Iowa, for a covenant to be valid and enforceable, it must be ‘necessary for the protection of the employer’s business’, ‘not unreasonably restrictive the to employee’s rights’, and ‘not be prejudicial to the public interest’.
Covenants not to compete are generally enforced when a loss of customers is a direct result of the personal, extensive and, oftentimes, exclusive contact between an employee and customer such as the case of an outside salesman working a defined territory. The non-compete is necessary to protect the business from losing clients based on relationships forged between employees and customers while the employee was working for the company.
The covenant not to compete must be reasonable with regard to the amount of time it can be enforced and the geographic area it can encompass. Although there are exceptions, two years is often viewed as a reasonable amount of time for an employer to establish a relationship with the customer after the employee terminates employment. The protected geographic area must be reasonably related to legitimate interests of the employer and not unduly restrictive of the employee. In the case of our salesman example, the restricted area is often limited to the employee’s sales territory immediately preceding the end of employment.
At one time, Iowa courts viewed non-competes as unenforceable if the restrictions were too severe or enforced it in its entirety if, on-the-whole, it seemed reasonable. Currently, however, Iowa has adopted the “partial enforcement doctrine” or “bluelining” as its referred to in other states. This approach allows a Court to enforce a covenant only to the extent to which it is reasonably necessary to protect the legitimate interests of the employer, will cause no undue hardship on the employee, and will not impair the public interest.
Prior to signing a non-compete agreement, employees should fully understand the legal implications of the agreement, seek legal advice, and attempt to negotiate changes to the agreement if it is unreasonably broad, lasts too long, or is not backed up by sufficient compensation. If you have violated an Iowa non-compete agreement, it is important to seek legal help immediately – contact the employment law offices of McDonald, Woodward & Carlson PC for help today.