Senate File 2302 - Introduced SENATE FILE 2302 BY BOULTON A BILL FOR An Act relating to prohibitions on noncompete covenants and 1 including applicability provisions. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 5060XS (3) 89 cm/jh
S.F. 2302 Section 1. NEW SECTION . 95.1 Definitions. 1 For purposes of this chapter: 2 1. “Covenant not to solicit” means an agreement that is 3 entered into between an employer and an employee that does any 4 of the following: 5 a. Restricts the employee from soliciting for employment the 6 employer’s employees. 7 b. Restricts the employee from soliciting, for the 8 purpose of selling products or services of any kind to, or 9 from interfering with the employer’s relationships with, the 10 employer’s clients, prospective clients, vendors, prospective 11 vendors, suppliers, prospective suppliers, or other business 12 relationships. 13 2. “Earnings” means the compensation, including earned 14 salary, earned bonuses, earned commissions, or any other form 15 of taxable compensation, reflected or that is expected to 16 be reflected as wages, tips, and other compensation on the 17 employee’s internal revenue service form W-2 plus any elective 18 deferrals not reflected as wages, tips, and other compensation 19 on the employee’s internal revenue service form W-2, such as, 20 without limitation, employee contributions to a 401(k) plan, a 21 403(b) plan, a flexible spending account, or a health savings 22 account, or commuter benefit-related deductions. 23 3. a. “Noncompete covenant” means an agreement between an 24 employer and an employee that is entered into that restricts 25 the employee from performing: 26 (1) Any work for another employer for a specific period of 27 time. 28 (2) Any work in a specified geographical area. 29 (3) Work for another employer that is similar to any 30 employee’s work for the employer included as a party to the 31 agreement. 32 b. “Noncompete covenant” also means an agreement between 33 an employer and an employee that by its terms imposes adverse 34 financial consequences on the former employee if the employee 35 -1- LSB 5060XS (3) 89 cm/jh 1/ 4
S.F. 2302 engages in competitive activities after the termination of the 1 employee’s employment with the employer. 2 c. “Noncompete covenant” does not include any of the 3 following: 4 (1) A covenant not to solicit. 5 (2) A confidentiality agreement or covenant. 6 (3) A covenant or agreement prohibiting use or disclosure 7 of trade secrets or inventions. 8 (4) Invention assignment agreements or covenants. 9 (5) A covenant or agreement entered into by a person that 10 sells the goodwill of a business and the person’s partners, 11 members, or shareholders may agree with the buyer to refrain 12 from carrying on a similar business within a reasonable 13 geographic area and for a reasonable length of time, if the 14 buyer or any person deriving title to the goodwill from the 15 buyer carries on a like business in that area. 16 (6) A covenant or agreement entered into by partners, 17 members, or shareholders, upon or in anticipation of a 18 dissolution of a partnership, limited liability company, or 19 corporation; upon or in anticipation of a dissociation of a 20 partner or member; or as part of an agreement addressing the 21 dissociation or sale of a partner, member, or shareholder's 22 ownership interest, may agree that all or any number of them 23 will not carry on a similar business within a reasonable 24 geographic area where the partnership, limited liability 25 company, or corporation business has been transacted, or within 26 a specified part of the area. 27 Sec. 2. NEW SECTION . 95.2 Impermissible noncompete 28 covenants. 29 The following noncompete covenants are void and violate this 30 chapter: 31 1. A noncompete covenant within an employment agreement 32 or contract in which an employee’s earnings are less than one 33 hundred fifty percent of the state or federal minimum wage. 34 2. A noncompete covenant with an employee unless the 35 -2- LSB 5060XS (3) 89 cm/jh 2/ 4
S.F. 2302 employer can show beyond a preponderance of the evidence that 1 there is a clear and inherent risk of unfair competition 2 absent the noncompete covenant and the noncompete covenant 3 was narrowly tailored to address the risk in restrictions to 4 geographic area and duration of the noncompete covenant. 5 Sec. 3. NEW SECTION . 95.3 Remedies. 6 In addition to any remedies available under any agreement 7 between the employer and the employee or under any other 8 statute, in a civil action, if an employer is found to have 9 violated this chapter, the employee shall recover from the 10 employer all reasonable attorney fees regarding an attempt to 11 enforce a noncompete covenant, court costs, lost wages, and 12 at the discretion of the court, liquidated damages of up to 13 triple the amount of lost wages for willful violations of this 14 chapter. An employer found to have violated this chapter may 15 be fined a five thousand dollar civil penalty per violation by 16 the division of labor. Penalties shall be paid to the division 17 of labor and transferred to the general fund. 18 Sec. 4. APPLICABILITY. This Act applies to covenants not 19 to compete entered into on or after the effective date of this 20 Act. 21 EXPLANATION 22 The inclusion of this explanation does not constitute agreement with 23 the explanation’s substance by the members of the general assembly. 24 This bill relates to noncompete covenants contained within 25 employment contracts and provisions that are prohibited and 26 void. The bill provides definitions for “covenant not to 27 solicit”, “earnings”, and “noncompete covenant”. 28 The bill provides that if a person makes less than 150 29 percent of the minimum wage, a noncompete covenant is 30 unenforceable and violates the bill. The bill provides 31 that a noncompete covenant with a non-low-wage employee is 32 unenforceable and violates the bill unless the employer can 33 show that the noncompete covenant is necessary due to a clear 34 and inherent risk of unfair competition and the noncompete 35 -3- LSB 5060XS (3) 89 cm/jh 3/ 4
S.F. 2302 covenant was narrowly tailored to mitigate the risk. 1 A prevailing employee is entitled to recover reasonable 2 attorney fees, court costs, lost wages, and at the discretion 3 of the court, liquidated damages of up to triple the amount of 4 lost wages for willful violations of the bill. An employer 5 found to be in violation of the bill is subject to a $5,000 6 penalty per violation payable to the division of labor for 7 deposit in the general fund. 8 The bill applies to covenants not to compete entered into on 9 or after the effective date of the bill. 10 -4- LSB 5060XS (3) 89 cm/jh 4/ 4