Senate File 304 - Introduced SENATE FILE 304 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 2246XS (2) 90 je/rn
S.F. 304 Section 1. Section 84A.5, subsection 4, Code 2023, is 1 amended to read as follows: 2 4. The division of labor services is responsible for the 3 administration of the laws of this state under chapters 88 , 4 88A , 88B , 89 , 89A , 89B , 90A , 91 , 91A , 91C , 91D , 91E , 92 , and 5 94A , and 95, and sections 73A.21 and 85.68 . The executive head 6 of the division is the labor commissioner, appointed pursuant 7 to section 91.2 . 8 Sec. 2. Section 91.4, subsection 2, Code 2023, is amended 9 to read as follows: 10 2. The director of the department of workforce development, 11 in consultation with the labor commissioner, shall, at the 12 time provided by law, make an annual report to the governor 13 setting forth in appropriate form the business and expense of 14 the division of labor services for the preceding year, the 15 number of remedial actions taken under chapter 89A , the number 16 of disputes or violations processed by the division and the 17 disposition of the disputes or violations, and other matters 18 pertaining to the division which are of public interest, 19 together with recommendations for change or amendment of the 20 laws in this chapter and chapters 88 , 88A , 88B , 89 , 89A , 89B , 21 90A , 91A , 91C , 91D , 91E , 92 , and 94A , and 95, and section 22 85.68 , and the recommendations, if any, shall be transmitted 23 by the governor to the first general assembly in session after 24 the report is filed. 25 Sec. 3. NEW SECTION . 95.1 Definitions. 26 For purposes of this chapter: 27 1. “Commissioner” means the labor commissioner appointed 28 pursuant to section 91.2 29 2. “Covenant not to solicit” means an agreement that is 30 entered into between an employer and an employee that does any 31 of the following: 32 a. Restricts the employee from soliciting for employment the 33 employer’s employees. 34 b. Restricts the employee from soliciting, for the 35 -1- LSB 2246XS (2) 90 je/rn 1/ 5
S.F. 304 purpose of selling products or services of any kind to, or 1 from interfering with the employer’s relationships with, the 2 employer’s clients, prospective clients, vendors, prospective 3 vendors, suppliers, prospective suppliers, or other business 4 relationships. 5 3. “Earnings” means the compensation, including earned 6 salary, earned bonuses, earned commissions, or any other form 7 of taxable compensation, reflected or that is expected to 8 be reflected as wages, tips, and other compensation on the 9 employee’s internal revenue service form W-2 plus any elective 10 deferrals not reflected as wages, tips, and other compensation 11 on the employee’s internal revenue service form W-2, such as, 12 without limitation, employee contributions to a 401(k) plan, a 13 403(b) plan, a flexible spending account, or a health savings 14 account, or commuter benefit-related deductions. 15 4. a. “Noncompete covenant” means an agreement between an 16 employer and an employee that is entered into that restricts 17 the employee from performing: 18 (1) Any work for another employer for a specific period of 19 time. 20 (2) Any work in a specified geographical area. 21 (3) Work for another employer that is similar to any 22 employee’s work for the employer included as a party to the 23 agreement. 24 b. “Noncompete covenant” also means an agreement between 25 an employer and an employee that by its terms imposes adverse 26 financial consequences on the former employee if the employee 27 engages in competitive activities after the termination of the 28 employee’s employment with the employer. 29 c. “Noncompete covenant” does not include any of the 30 following: 31 (1) A covenant not to solicit. 32 (2) A confidentiality agreement or covenant. 33 (3) A covenant or agreement prohibiting use or disclosure 34 of trade secrets or inventions. 35 -2- LSB 2246XS (2) 90 je/rn 2/ 5
S.F. 304 (4) Invention assignment agreements or covenants. 1 Sec. 4. NEW SECTION . 95.2 Impermissible noncompete 2 covenants. 3 The following noncompete covenants are void and violate this 4 chapter: 5 1. A noncompete covenant within an employment agreement 6 or contract in which an employee’s earnings are less than one 7 hundred fifty percent of the state or federal minimum wage. 8 2. A noncompete covenant with an employee unless the 9 employer can show beyond a preponderance of the evidence that 10 there is a clear and inherent risk of unfair competition 11 absent the noncompete covenant and the noncompete covenant 12 was narrowly tailored to address the risk in restrictions to 13 geographic area and duration of the noncompete covenant. 14 Sec. 5. NEW SECTION . 95.3 Exceptions. 15 1. A covenant or agreement entered into by a person that 16 sells the goodwill of a business and the person’s partners, 17 members, or shareholders may agree with the buyer to refrain 18 from carrying on a similar business within a reasonable 19 geographic area and for a reasonable length of time, if the 20 buyer or any person deriving title to the goodwill from the 21 buyer carries on a like business in that area. 22 2. A covenant or agreement entered into by partners, 23 members, or shareholders, upon or in anticipation of a 24 dissolution of a partnership, limited liability company, or 25 corporation; upon or in anticipation of a dissociation of a 26 partner or member; or as part of an agreement addressing the 27 dissociation or sale of a partner, member, or shareholder's 28 ownership interest, may agree that all or any number of them 29 will not carry on a similar business within a reasonable 30 geographic area where the partnership, limited liability 31 company, or corporation business has been transacted, or within 32 a specified part of the area. 33 Sec. 6. NEW SECTION . 95.4 Remedies. 34 1. In addition to any remedies available under any agreement 35 -3- LSB 2246XS (2) 90 je/rn 3/ 5
S.F. 304 between the employer and the employee or under any other 1 statute, in a civil action, if an employer is found to have 2 violated this chapter, the employee shall recover from the 3 employer all reasonable attorney fees regarding an attempt to 4 enforce a noncompete covenant, court costs, lost wages, and 5 at the discretion of the court, liquidated damages of up to 6 triple the amount of lost wages for willful violations of this 7 chapter. 8 2. An employer found to have violated this chapter may be 9 fined a five thousand dollar civil penalty per violation by the 10 commissioner. Penalties shall be paid to the commissioner and 11 transferred to the general fund. 12 Sec. 7. NEW SECTION . 95.5 Rules. 13 The commissioner shall adopt rules pursuant to chapter 17A 14 to administer and enforce this chapter. 15 Sec. 8. APPLICABILITY. This Act applies to covenants not 16 to compete entered into on or after the effective date of this 17 Act. 18 EXPLANATION 19 The inclusion of this explanation does not constitute agreement with 20 the explanation’s substance by the members of the general assembly. 21 This bill relates to noncompete covenants, as defined in the 22 bill, contained within employment contracts and provisions that 23 are prohibited and void. 24 The bill provides that if a person makes less than 150 25 percent of the minimum wage, a noncompete covenant is 26 unenforceable and violates the bill. The bill provides 27 that a noncompete covenant with a non-low-wage employee is 28 unenforceable and violates the bill unless the employer can 29 show that the noncompete covenant is necessary due to a clear 30 and inherent risk of unfair competition and the noncompete 31 covenant was narrowly tailored to mitigate the risk. The bill 32 includes exceptions to these provisions. 33 A prevailing employee is entitled to recover reasonable 34 attorney fees, court costs, lost wages, and at the discretion 35 -4- LSB 2246XS (2) 90 je/rn 4/ 5
S.F. 304 of the court, liquidated damages of up to triple the amount of 1 lost wages for willful violations of the bill. An employer 2 found to be in violation of the bill is subject to a $5,000 3 penalty per violation payable to the labor commissioner for 4 deposit in the general fund. 5 The bill applies to covenants not to compete entered into on 6 or after the effective date of the bill. 7 -5- LSB 2246XS (2) 90 je/rn 5/ 5