Senate Study Bill 1031 - IntroducedA Bill ForAn Act 1concerning the circumstances under which employers
2can enter into noncompete agreements with employees and
3including applicability provisions.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1   Section 1.  NEW SECTION.  94.1  Definitions.
   2For purposes of this chapter, unless the context otherwise
3requires:
   41.  “Bona fide advancement” means an increase or enhancement
5in job duties or responsibilities accompanied by an increase or
6enhancement of an employee’s pay or benefits and a modification
7of the employee’s job title.
   82.  “Confidentiality agreement” means an agreement between
9an employer and employee by which an employee agrees not to
10disclose specified information designated by the employer as
11confidential.
   123.  “Earnings” means the compensation reflected on box one
13of the employee’s United States internal revenue service form
14W-2 that is paid to an employee over the prior year, or the
15portion thereof for which the employee was employed, annualized
16and calculated as of the earlier of the date enforcement of the
17noncompete agreement is sought by the employer or the date of
18the employee’s separation from employment.
   194.  “Employee” means a natural person who is employed in this
20state for wages by an employer.
   215.  “Employer” means a person, as defined in chapter 4, who
22in this state employs for wages a natural person.
   236.  “Franchisee” and “franchisor” mean the same as defined
24in section 523H.1.
   257.  “Noncompete agreement” includes every written or oral
26covenant, agreement, or contract by which an employee is
27prohibited or restrained from engaging in a lawful profession,
28trade, or business of any kind. “Noncompete agreement” does not
29include any of the following:
   30a.  A nonsolicitation agreement.
   31b.  A confidentiality agreement.
   32c.  An agreement prohibiting use or disclosure of trade
33secrets or inventions.
   348.  “Nonsolicitation agreement” means an agreement between
35an employer and employee that prohibits solicitation by
-1-1an employee, upon termination of employment, of any of the
2following:
   3a.  An employee of the employer to leave employment by the
4employer.
   5b.  A customer of the employer to cease or reduce the extent
6to which the customer does business with the employer.
7   Sec. 2.  NEW SECTION.  94.2  Limitations on noncompete
8agreements.
   91.  A noncompete agreement entered into between an employer
10and an employee on or after the effective date of this Act
11is void and unenforceable against an employee in all of the
12following circumstances:
   13a.  When receiving an offer of employment from an employer is
14contingent upon entering into a noncompete agreement, unless,
15before the employer offers employment to the employee, the
16employer does all of the following:
   17(1)  Notifies the employee in writing that obtaining
18employment is contingent on signing a noncompete agreement.
   19(2)  Gives the employee a written copy of the noncompete
20agreement to be signed by both employee and employer.
   21b.  When receiving an offer of a bona fide advancement from
22an employer is contingent upon entering into a noncompete
23agreement, unless, before the employer offers the bona fide
24advancement to the employee, the employer does all of the
25following:
   26(1)  Notifies the employee in writing that the advancement
27was contingent on signing a noncompete agreement.
   28(2)  Gives the employee a written copy of the noncompete
29agreement to be signed by both employee and employer.
   30c.  When entering into a noncompete agreement is required
31in order to continue employment by the employer after a
32substantial change in circumstances of the employer including
33but not limited to the sale of all or substantially all of the
34employer’s assets, the employer’s acceptance of significant
35financing from a third party, or the employer’s entering into a
-2-1partnership, joint venture, or other such business arrangement
2with another person, unless, before the substantial change
3in circumstances is completed, the employer does all of the
4following:
   5(1)  Notifies the employee in writing that continued
6employment is contingent on signing a noncompete agreement.
   7(2)  Gives the employee a written copy of the noncompete
8agreement to be signed by both employee and employer.
   9d.  If the employee’s earnings from the employer, when
10annualized, do not exceed forty-one thousand six hundred
11dollars per year.
   12e.  If the employer terminates the employment of the
13employee, but the termination is not for good cause.
   14f.  If the agreement exceeds eighteen months in duration.
   15g.  If the employee is participating in a program registered
16with the United States department of labor, office of
17apprenticeship.
   18h.  If the employee is an undergraduate or graduate student
19working as an intern or in other short-term employment.
   20i.  If the employee is under eighteen years of age.
21   Sec. 3.  NEW SECTION.  94.3  Limitations on franchises.
   221.  A franchisor shall not restrict, restrain, or prohibit in
23any way a franchisee from soliciting or hiring any employee of
24a franchisee of the same franchisor.
   252.  A franchisor shall not restrict, restrain, or prohibit
26in any way a franchisee from soliciting or hiring any employee
27of the franchisor.
28   Sec. 4.  APPLICABILITY.  This Act applies to noncompete
29agreements entered into between an employer and an employee on
30or after the effective date of this Act.
31EXPLANATION
32The inclusion of this explanation does not constitute agreement with
33the explanation’s substance by the members of the general assembly.
   34This bill relates to the circumstances under which employers
35can enter into noncompete agreements with employees.
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   1The bill defines a noncompete agreement to include every
2written or oral covenant, agreement, or contract by which an
3employee is prohibited or restrained from engaging in a lawful
4profession, trade, or business of any kind. The bill excludes
5a nonsolicitation agreement, confidentiality agreement, or
6agreement prohibiting use or disclosure of trade secrets or
7inventions from this definition.
   8The bill provides that a noncompete agreement entered
9into between an employer and an employee on or after the
10effective date of the bill is void and unenforceable against
11an employee in certain specified circumstances relating to
12contingent offers of employment, contingent offers of bona fide
13advancement, entering into a noncompete agreement in order
14to continue employment by the employer after a substantial
15change in circumstances of the employer, an employee’s earnings
16not exceeding $41,600 per year, termination of employment if
17not for good cause, the noncompete agreement exceeding 18
18months in duration, the employee participating in a program
19registered with the United States department of labor, office
20of apprenticeship, the employee being an undergraduate or
21graduate student working as an intern or in other short-term
22employment, or the employee being under 18 years of age.
   23The bill prohibits a franchisor from restricting,
24restraining, or prohibiting in any way a franchisee from
25soliciting or hiring any employee of a franchisee of the same
26franchisor. The bill prohibits a franchisor from restricting,
27restraining, or prohibiting in any way a franchisee from
28soliciting or hiring any employee of the franchisor.
   29The bill applies to noncompete agreements entered into
30between an employer and an employee on or after the effective
31date of the bill.
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