SF 380 (LSB 2201XS (3) 91)

SENATE FILE 380

BY  DONAHUE

A BILL FOR

An Act relating to prohibitions on noncompete covenants involving nurses and including applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 10A.202, subsection 2, Code 2025, is amended to read as follows:
   2.  The department is responsible for the administration of the laws of this state under chapters 88A, 88B, 89, 89A, 90A, 91A, 91C, 91D, 91E, 92, and 95, and such other labor-services duties assigned to the department or director.
    Sec. 2.  Section 10A.204, subsection 3, Code 2025, is amended to read as follows:
   3.  The director, in consultation with the labor commissioner, shall, at the time provided by law, make an annual report to the governor setting forth in appropriate form the business and expense of the division and department under this subchapter for the preceding year, the number of remedial actions taken under chapter 89A, the number of disputes or violations processed by the division or department and the disposition of the disputes or violations, and other matters pertaining to the division or department under this subchapter which that are of public interest, together with recommendations for change or amendment of the laws in this chapter and chapters 88, 88A, 88B, 89, 89A, 89B, 90A, 91A, 91C, 91D, 91E, and 92, and 95, and sections 85.67A and 85.68, and the recommendations, if any, shall be transmitted by the governor to the first general assembly in session after the report is filed.
    Sec. 3.  NEW SECTION.  95.1  Definitions.
   For purposes of this chapter unless the context otherwise requires:
   1.  “Covenant not to solicit” means an agreement that is entered into between an employer and an employee that does any of the following:
   a.  Restricts the employee from soliciting for employment the employer’s employees.
   b.  Restricts the employee from soliciting, for the purpose of selling products or services of any kind to, or from interfering with the employer’s relationships with, the employer’s clients, prospective clients, vendors, prospective vendors, suppliers, prospective suppliers, or other business relationships.
   2.  “Director” means the director of the department of inspections, appeals, and licensing. 
   3.  “Earnings” means the compensation, including earned salary, earned bonuses, earned commissions, or any other form of taxable compensation, reflected or that is expected to be reflected as wages, tips, and other compensation on the employee’s internal revenue service form W-2 plus any elective deferrals not reflected as wages, tips, and other compensation on the employee’s internal revenue service form W-2, such as, without limitation, employee contributions to a 401(k) plan, a 403(b) plan, a flexible spending account, or a health savings account, or commuter benefit-related deductions.
   4.  “Employee” means a person licensed and employed as a registered nurse or an advanced registered nurse practitioner under chapter 152 or 152E.
   5.  a.  “Noncompete covenant” means an agreement between an employer and an employee that is entered into that restricts the employee from performing:
   (1)  Any work for another employer for a specific period of time.
   (2)  Any work in a specified geographical area.
   (3)  Work for another employer that is similar to any employee’s work for the employer included as a party to the agreement.
   b.  “Noncompete covenant” also means an agreement between an employer and an employee that by its terms imposes adverse financial consequences on the former employee if the employee engages in competitive activities after the termination of the employee’s employment with the employer.
   c.  “Noncompete covenant” does not include any of the following:
   (1)  A covenant not to solicit.
   (2)  A confidentiality agreement or covenant.
   (3)  A covenant or agreement prohibiting use or disclosure of trade secrets or inventions.
   (4)  Invention assignment agreements or covenants.
    Sec. 4.  NEW SECTION.  95.2  Impermissible noncompete covenants.
   The following noncompete covenants are void and violate this chapter:
   1.  A noncompete covenant within an employment agreement or contract in which an employee’s earnings are less than one hundred fifty percent of the state or federal minimum wage.
   2.  A noncompete covenant with an employee unless the employer can show beyond a preponderance of the evidence that there is a clear and inherent risk of unfair competition absent the noncompete covenant and the noncompete covenant was narrowly tailored to address the risk in restrictions to geographic area and duration of the noncompete covenant.
    Sec. 5.  NEW SECTION.  95.3  Exceptions.
   1.  A covenant or agreement entered into by a person that sells the goodwill of a business and the person’s partners, members, or shareholders may agree with the buyer to refrain from carrying on a similar business within a reasonable geographic area and for a reasonable length of time, if the buyer or any person deriving title to the goodwill from the buyer carries on a like business in that area.
   2.  A covenant or agreement entered into by partners, members, or shareholders, upon or in anticipation of a dissolution of a partnership, limited liability company, or corporation; upon or in anticipation of a dissociation of a partner or member; or as part of an agreement addressing the dissociation or sale of a partner, member, or shareholder’s ownership interest, may agree that all or any number of them will not carry on a similar business within a reasonable geographic area where the partnership, limited liability company, or corporation business has been transacted, or within a specified part of the area.
    Sec. 6.  NEW SECTION.  95.4  Remedies.
   1.  In addition to any remedies available under any agreement between the employer and the employee or under any other statute, in a civil action, if an employer is found to have violated this chapter, the employee shall recover from the employer all reasonable attorney fees regarding an attempt to enforce a noncompete covenant, court costs, lost wages, and, at the discretion of the court, liquidated damages of up to triple the amount of lost wages for willful violations of this chapter.
   2.  An employer found to have violated this chapter may be fined a five thousand dollar civil penalty per violation by the director. Penalties shall be paid to the director and transferred to the general fund.
    Sec. 7.  NEW SECTION.  95.5  Rules.
   The director shall adopt rules pursuant to chapter 17A to administer and enforce this chapter.
    Sec. 8.  APPLICABILITY.  This Act applies to covenants not to compete entered into on or after the effective date of this Act.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to noncompete covenants, as defined in the bill, contained within employment contracts involving nurses and provisions that are prohibited and void.
   The bill provides that if a person employed as a registered nurse or an advanced registered nurse practitioner makes less than 150 percent of the minimum wage, a noncompete covenant is unenforceable and violates the bill. The bill provides that a noncompete covenant with an employee who exceeds that wage threshold is unenforceable and violates the bill unless the employer can show that the noncompete covenant is necessary due to a clear and inherent risk of unfair competition and the noncompete covenant was narrowly tailored to mitigate the risk. The bill includes exceptions to these provisions.
   A prevailing employee is entitled to recover reasonable attorney fees, court costs, lost wages, and at the discretion of the court, liquidated damages of up to triple the amount of lost wages for willful violations of the bill. An employer found to be in violation of the bill is subject to a $5,000 penalty per violation payable to the director of the department of inspections, appeals, and licensing for deposit in the general fund.
   The bill applies to covenants not to compete entered into on or after the effective date of the bill.