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Senate File 304 - IntroducedA Bill ForAn Act 1relating to prohibitions on noncompete covenants and
2including applicability provisions.
3BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 84A.5, subsection 4, Code 2023, is
2amended to read as follows:
34. The division of labor services is responsible for the
4administration of the laws of this state under chapters 88,
588A, 88B, 89, 89A, 89B, 90A, 91, 91A, 91C, 91D, 91E, 92, and
6 94A, and 95, and sections 73A.21 and 85.68. The executive head
7of the division is the labor commissioner, appointed pursuant
8to section 91.2.
9 Sec. 2. Section 91.4, subsection 2, Code 2023, is amended
10to read as follows:
112. The director of the department of workforce development,
12in consultation with the labor commissioner, shall, at the
13time provided by law, make an annual report to the governor
14setting forth in appropriate form the business and expense of
15the division of labor services for the preceding year, the
16number of remedial actions taken under chapter 89A, the number
17of disputes or violations processed by the division and the
18disposition of the disputes or violations, and other matters
19pertaining to the division which are of public interest,
20together with recommendations for change or amendment of the
21laws in this chapter and chapters 88, 88A, 88B, 89, 89A, 89B,
2290A, 91A, 91C, 91D, 91E, 92, and 94A, and 95, and section
2385.68, and the recommendations, if any, shall be transmitted
24by the governor to the first general assembly in session after
25the report is filed.
26 Sec. 3. NEW SECTION. 95.1 Definitions.
27For purposes of this chapter:
281. “Commissioner” means the labor commissioner appointed
29pursuant to section 91.2
302. “Covenant not to solicit” means an agreement that is
31entered into between an employer and an employee that does any
32of the following:
33a. Restricts the employee from soliciting for employment the
34employer’s employees.
35b. Restricts the employee from soliciting, for the
-1-1purpose of selling products or services of any kind to, or
2from interfering with the employer’s relationships with, the
3employer’s clients, prospective clients, vendors, prospective
4vendors, suppliers, prospective suppliers, or other business
5relationships.
63. “Earnings” means the compensation, including earned
7salary, earned bonuses, earned commissions, or any other form
8of taxable compensation, reflected or that is expected to
9be reflected as wages, tips, and other compensation on the
10employee’s internal revenue service form W-2 plus any elective
11deferrals not reflected as wages, tips, and other compensation
12on the employee’s internal revenue service form W-2, such as,
13without limitation, employee contributions to a 401(k) plan, a
14403(b) plan, a flexible spending account, or a health savings
15account, or commuter benefit-related deductions.
164. a. “Noncompete covenant” means an agreement between an
17employer and an employee that is entered into that restricts
18the employee from performing:
19(1) Any work for another employer for a specific period of
20time.
21(2) Any work in a specified geographical area.
22(3) Work for another employer that is similar to any
23employee’s work for the employer included as a party to the
24agreement.
25b. “Noncompete covenant” also means an agreement between
26an employer and an employee that by its terms imposes adverse
27financial consequences on the former employee if the employee
28engages in competitive activities after the termination of the
29employee’s employment with the employer.
30c. “Noncompete covenant” does not include any of the
31following:
32(1) A covenant not to solicit.
33(2) A confidentiality agreement or covenant.
34(3) A covenant or agreement prohibiting use or disclosure
35of trade secrets or inventions.
-2- 1(4) Invention assignment agreements or covenants.
2 Sec. 4. NEW SECTION. 95.2 Impermissible noncompete
3covenants.
4The following noncompete covenants are void and violate this
5chapter:
61. A noncompete covenant within an employment agreement
7or contract in which an employee’s earnings are less than one
8hundred fifty percent of the state or federal minimum wage.
92. A noncompete covenant with an employee unless the
10employer can show beyond a preponderance of the evidence that
11there is a clear and inherent risk of unfair competition
12absent the noncompete covenant and the noncompete covenant
13was narrowly tailored to address the risk in restrictions to
14geographic area and duration of the noncompete covenant.
15 Sec. 5. NEW SECTION. 95.3 Exceptions.
161. A covenant or agreement entered into by a person that
17sells the goodwill of a business and the person’s partners,
18members, or shareholders may agree with the buyer to refrain
19from carrying on a similar business within a reasonable
20geographic area and for a reasonable length of time, if the
21buyer or any person deriving title to the goodwill from the
22buyer carries on a like business in that area.
232. A covenant or agreement entered into by partners,
24members, or shareholders, upon or in anticipation of a
25dissolution of a partnership, limited liability company, or
26corporation; upon or in anticipation of a dissociation of a
27partner or member; or as part of an agreement addressing the
28dissociation or sale of a partner, member, or shareholder's
29ownership interest, may agree that all or any number of them
30will not carry on a similar business within a reasonable
31geographic area where the partnership, limited liability
32company, or corporation business has been transacted, or within
33a specified part of the area.
34 Sec. 6. NEW SECTION. 95.4 Remedies.
351. In addition to any remedies available under any agreement
-3-1between the employer and the employee or under any other
2statute, in a civil action, if an employer is found to have
3violated this chapter, the employee shall recover from the
4employer all reasonable attorney fees regarding an attempt to
5enforce a noncompete covenant, court costs, lost wages, and
6at the discretion of the court, liquidated damages of up to
7triple the amount of lost wages for willful violations of this
8chapter.
92. An employer found to have violated this chapter may be
10fined a five thousand dollar civil penalty per violation by the
11commissioner. Penalties shall be paid to the commissioner and
12transferred to the general fund.
13 Sec. 7. NEW SECTION. 95.5 Rules.
14The commissioner shall adopt rules pursuant to chapter 17A
15to administer and enforce this chapter.
16 Sec. 8. APPLICABILITY. This Act applies to covenants not
17to compete entered into on or after the effective date of this
18Act.
19EXPLANATION
20The inclusion of this explanation does not constitute agreement with
21the explanation’s substance by the members of the general assembly.
22This bill relates to noncompete covenants, as defined in the
23bill, contained within employment contracts and provisions that
24are prohibited and void.
25The bill provides that if a person makes less than 150
26percent of the minimum wage, a noncompete covenant is
27unenforceable and violates the bill. The bill provides
28that a noncompete covenant with a non-low-wage employee is
29unenforceable and violates the bill unless the employer can
30show that the noncompete covenant is necessary due to a clear
31and inherent risk of unfair competition and the noncompete
32covenant was narrowly tailored to mitigate the risk. The bill
33includes exceptions to these provisions.
34A prevailing employee is entitled to recover reasonable
35attorney fees, court costs, lost wages, and at the discretion
-4-1of the court, liquidated damages of up to triple the amount of
2lost wages for willful violations of the bill. An employer
3found to be in violation of the bill is subject to a $5,000
4penalty per violation payable to the labor commissioner for
5deposit in the general fund.
6The bill applies to covenants not to compete entered into on
7or after the effective date of the bill.
-5-je/rn
2including applicability provisions.
3BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 84A.5, subsection 4, Code 2023, is
2amended to read as follows:
34. The division of labor services is responsible for the
4administration of the laws of this state under chapters 88,
588A, 88B, 89, 89A, 89B, 90A, 91, 91A, 91C, 91D, 91E, 92, and
6 94A, and 95, and sections 73A.21 and 85.68. The executive head
7of the division is the labor commissioner, appointed pursuant
8to section 91.2.
9 Sec. 2. Section 91.4, subsection 2, Code 2023, is amended
10to read as follows:
112. The director of the department of workforce development,
12in consultation with the labor commissioner, shall, at the
13time provided by law, make an annual report to the governor
14setting forth in appropriate form the business and expense of
15the division of labor services for the preceding year, the
16number of remedial actions taken under chapter 89A, the number
17of disputes or violations processed by the division and the
18disposition of the disputes or violations, and other matters
19pertaining to the division which are of public interest,
20together with recommendations for change or amendment of the
21laws in this chapter and chapters 88, 88A, 88B, 89, 89A, 89B,
2290A, 91A, 91C, 91D, 91E, 92, and 94A, and 95, and section
2385.68, and the recommendations, if any, shall be transmitted
24by the governor to the first general assembly in session after
25the report is filed.
26 Sec. 3. NEW SECTION. 95.1 Definitions.
27For purposes of this chapter:
281. “Commissioner” means the labor commissioner appointed
29pursuant to section 91.2
302. “Covenant not to solicit” means an agreement that is
31entered into between an employer and an employee that does any
32of the following:
33a. Restricts the employee from soliciting for employment the
34employer’s employees.
35b. Restricts the employee from soliciting, for the
-1-1purpose of selling products or services of any kind to, or
2from interfering with the employer’s relationships with, the
3employer’s clients, prospective clients, vendors, prospective
4vendors, suppliers, prospective suppliers, or other business
5relationships.
63. “Earnings” means the compensation, including earned
7salary, earned bonuses, earned commissions, or any other form
8of taxable compensation, reflected or that is expected to
9be reflected as wages, tips, and other compensation on the
10employee’s internal revenue service form W-2 plus any elective
11deferrals not reflected as wages, tips, and other compensation
12on the employee’s internal revenue service form W-2, such as,
13without limitation, employee contributions to a 401(k) plan, a
14403(b) plan, a flexible spending account, or a health savings
15account, or commuter benefit-related deductions.
164. a. “Noncompete covenant” means an agreement between an
17employer and an employee that is entered into that restricts
18the employee from performing:
19(1) Any work for another employer for a specific period of
20time.
21(2) Any work in a specified geographical area.
22(3) Work for another employer that is similar to any
23employee’s work for the employer included as a party to the
24agreement.
25b. “Noncompete covenant” also means an agreement between
26an employer and an employee that by its terms imposes adverse
27financial consequences on the former employee if the employee
28engages in competitive activities after the termination of the
29employee’s employment with the employer.
30c. “Noncompete covenant” does not include any of the
31following:
32(1) A covenant not to solicit.
33(2) A confidentiality agreement or covenant.
34(3) A covenant or agreement prohibiting use or disclosure
35of trade secrets or inventions.
-2- 1(4) Invention assignment agreements or covenants.
2 Sec. 4. NEW SECTION. 95.2 Impermissible noncompete
3covenants.
4The following noncompete covenants are void and violate this
5chapter:
61. A noncompete covenant within an employment agreement
7or contract in which an employee’s earnings are less than one
8hundred fifty percent of the state or federal minimum wage.
92. A noncompete covenant with an employee unless the
10employer can show beyond a preponderance of the evidence that
11there is a clear and inherent risk of unfair competition
12absent the noncompete covenant and the noncompete covenant
13was narrowly tailored to address the risk in restrictions to
14geographic area and duration of the noncompete covenant.
15 Sec. 5. NEW SECTION. 95.3 Exceptions.
161. A covenant or agreement entered into by a person that
17sells the goodwill of a business and the person’s partners,
18members, or shareholders may agree with the buyer to refrain
19from carrying on a similar business within a reasonable
20geographic area and for a reasonable length of time, if the
21buyer or any person deriving title to the goodwill from the
22buyer carries on a like business in that area.
232. A covenant or agreement entered into by partners,
24members, or shareholders, upon or in anticipation of a
25dissolution of a partnership, limited liability company, or
26corporation; upon or in anticipation of a dissociation of a
27partner or member; or as part of an agreement addressing the
28dissociation or sale of a partner, member, or shareholder's
29ownership interest, may agree that all or any number of them
30will not carry on a similar business within a reasonable
31geographic area where the partnership, limited liability
32company, or corporation business has been transacted, or within
33a specified part of the area.
34 Sec. 6. NEW SECTION. 95.4 Remedies.
351. In addition to any remedies available under any agreement
-3-1between the employer and the employee or under any other
2statute, in a civil action, if an employer is found to have
3violated this chapter, the employee shall recover from the
4employer all reasonable attorney fees regarding an attempt to
5enforce a noncompete covenant, court costs, lost wages, and
6at the discretion of the court, liquidated damages of up to
7triple the amount of lost wages for willful violations of this
8chapter.
92. An employer found to have violated this chapter may be
10fined a five thousand dollar civil penalty per violation by the
11commissioner. Penalties shall be paid to the commissioner and
12transferred to the general fund.
13 Sec. 7. NEW SECTION. 95.5 Rules.
14The commissioner shall adopt rules pursuant to chapter 17A
15to administer and enforce this chapter.
16 Sec. 8. APPLICABILITY. This Act applies to covenants not
17to compete entered into on or after the effective date of this
18Act.
19EXPLANATION
20The inclusion of this explanation does not constitute agreement with
21the explanation’s substance by the members of the general assembly.
22This bill relates to noncompete covenants, as defined in the
23bill, contained within employment contracts and provisions that
24are prohibited and void.
25The bill provides that if a person makes less than 150
26percent of the minimum wage, a noncompete covenant is
27unenforceable and violates the bill. The bill provides
28that a noncompete covenant with a non-low-wage employee is
29unenforceable and violates the bill unless the employer can
30show that the noncompete covenant is necessary due to a clear
31and inherent risk of unfair competition and the noncompete
32covenant was narrowly tailored to mitigate the risk. The bill
33includes exceptions to these provisions.
34A prevailing employee is entitled to recover reasonable
35attorney fees, court costs, lost wages, and at the discretion
-4-1of the court, liquidated damages of up to triple the amount of
2lost wages for willful violations of the bill. An employer
3found to be in violation of the bill is subject to a $5,000
4penalty per violation payable to the labor commissioner for
5deposit in the general fund.
6The bill applies to covenants not to compete entered into on
7or after the effective date of the bill.
-5-je/rn