Senate Study Bill 1031 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON LABOR AND BUSINESS RELATIONS BILL BY CHAIRPERSON WHITING) A BILL FOR An Act concerning the circumstances under which employers 1 can enter into noncompete agreements with employees and 2 including applicability provisions. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 1636XC (2) 89 je/rn

S.F. _____ Section 1. NEW SECTION . 94.1 Definitions. 1 For purposes of this chapter, unless the context otherwise 2 requires: 3 1. “Bona fide advancement” means an increase or enhancement 4 in job duties or responsibilities accompanied by an increase or 5 enhancement of an employee’s pay or benefits and a modification 6 of the employee’s job title. 7 2. “Confidentiality agreement” means an agreement between 8 an employer and employee by which an employee agrees not to 9 disclose specified information designated by the employer as 10 confidential. 11 3. “Earnings” means the compensation reflected on box one 12 of the employee’s United States internal revenue service form 13 W-2 that is paid to an employee over the prior year, or the 14 portion thereof for which the employee was employed, annualized 15 and calculated as of the earlier of the date enforcement of the 16 noncompete agreement is sought by the employer or the date of 17 the employee’s separation from employment. 18 4. “Employee” means a natural person who is employed in this 19 state for wages by an employer. 20 5. “Employer” means a person, as defined in chapter 4, who 21 in this state employs for wages a natural person. 22 6. “Franchisee” and “franchisor” mean the same as defined 23 in section 523H.1. 24 7. “Noncompete agreement” includes every written or oral 25 covenant, agreement, or contract by which an employee is 26 prohibited or restrained from engaging in a lawful profession, 27 trade, or business of any kind. “Noncompete agreement” does not 28 include any of the following: 29 a. A nonsolicitation agreement. 30 b. A confidentiality agreement. 31 c. An agreement prohibiting use or disclosure of trade 32 secrets or inventions. 33 8. “Nonsolicitation agreement” means an agreement between 34 an employer and employee that prohibits solicitation by 35 -1- LSB 1636XC (2) 89 je/rn 1/ 4

S.F. _____ an employee, upon termination of employment, of any of the 1 following: 2 a. An employee of the employer to leave employment by the 3 employer. 4 b. A customer of the employer to cease or reduce the extent 5 to which the customer does business with the employer. 6 Sec. 2. NEW SECTION . 94.2 Limitations on noncompete 7 agreements. 8 1. A noncompete agreement entered into between an employer 9 and an employee on or after the effective date of this Act 10 is void and unenforceable against an employee in all of the 11 following circumstances: 12 a. When receiving an offer of employment from an employer is 13 contingent upon entering into a noncompete agreement, unless, 14 before the employer offers employment to the employee, the 15 employer does all of the following: 16 (1) Notifies the employee in writing that obtaining 17 employment is contingent on signing a noncompete agreement. 18 (2) Gives the employee a written copy of the noncompete 19 agreement to be signed by both employee and employer. 20 b. When receiving an offer of a bona fide advancement from 21 an employer is contingent upon entering into a noncompete 22 agreement, unless, before the employer offers the bona fide 23 advancement to the employee, the employer does all of the 24 following: 25 (1) Notifies the employee in writing that the advancement 26 was contingent on signing a noncompete agreement. 27 (2) Gives the employee a written copy of the noncompete 28 agreement to be signed by both employee and employer. 29 c. When entering into a noncompete agreement is required 30 in order to continue employment by the employer after a 31 substantial change in circumstances of the employer including 32 but not limited to the sale of all or substantially all of the 33 employer’s assets, the employer’s acceptance of significant 34 financing from a third party, or the employer’s entering into a 35 -2- LSB 1636XC (2) 89 je/rn 2/ 4

S.F. _____ partnership, joint venture, or other such business arrangement 1 with another person, unless, before the substantial change 2 in circumstances is completed, the employer does all of the 3 following: 4 (1) Notifies the employee in writing that continued 5 employment is contingent on signing a noncompete agreement. 6 (2) Gives the employee a written copy of the noncompete 7 agreement to be signed by both employee and employer. 8 d. If the employee’s earnings from the employer, when 9 annualized, do not exceed forty-one thousand six hundred 10 dollars per year. 11 e. If the employer terminates the employment of the 12 employee, but the termination is not for good cause. 13 f. If the agreement exceeds eighteen months in duration. 14 g. If the employee is participating in a program registered 15 with the United States department of labor, office of 16 apprenticeship. 17 h. If the employee is an undergraduate or graduate student 18 working as an intern or in other short-term employment. 19 i. If the employee is under eighteen years of age. 20 Sec. 3. NEW SECTION . 94.3 Limitations on franchises. 21 1. A franchisor shall not restrict, restrain, or prohibit in 22 any way a franchisee from soliciting or hiring any employee of 23 a franchisee of the same franchisor. 24 2. A franchisor shall not restrict, restrain, or prohibit 25 in any way a franchisee from soliciting or hiring any employee 26 of the franchisor. 27 Sec. 4. APPLICABILITY. This Act applies to noncompete 28 agreements entered into between an employer and an employee on 29 or after the effective date of this Act. 30 EXPLANATION 31 The inclusion of this explanation does not constitute agreement with 32 the explanation’s substance by the members of the general assembly. 33 This bill relates to the circumstances under which employers 34 can enter into noncompete agreements with employees. 35 -3- LSB 1636XC (2) 89 je/rn 3/ 4

S.F. _____ The bill defines a noncompete agreement to include every 1 written or oral covenant, agreement, or contract by which an 2 employee is prohibited or restrained from engaging in a lawful 3 profession, trade, or business of any kind. The bill excludes 4 a nonsolicitation agreement, confidentiality agreement, or 5 agreement prohibiting use or disclosure of trade secrets or 6 inventions from this definition. 7 The bill provides that a noncompete agreement entered 8 into between an employer and an employee on or after the 9 effective date of the bill is void and unenforceable against 10 an employee in certain specified circumstances relating to 11 contingent offers of employment, contingent offers of bona fide 12 advancement, entering into a noncompete agreement in order 13 to continue employment by the employer after a substantial 14 change in circumstances of the employer, an employee’s earnings 15 not exceeding $41,600 per year, termination of employment if 16 not for good cause, the noncompete agreement exceeding 18 17 months in duration, the employee participating in a program 18 registered with the United States department of labor, office 19 of apprenticeship, the employee being an undergraduate or 20 graduate student working as an intern or in other short-term 21 employment, or the employee being under 18 years of age. 22 The bill prohibits a franchisor from restricting, 23 restraining, or prohibiting in any way a franchisee from 24 soliciting or hiring any employee of a franchisee of the same 25 franchisor. The bill prohibits a franchisor from restricting, 26 restraining, or prohibiting in any way a franchisee from 27 soliciting or hiring any employee of the franchisor. 28 The bill applies to noncompete agreements entered into 29 between an employer and an employee on or after the effective 30 date of the bill. 31 -4- LSB 1636XC (2) 89 je/rn 4/ 4