In Iowa, non-compete agreements are enforceable under certain circumstances.  The best time to secure a non-compete is when you hire the employee although continued employment may be sufficient consideration to bind even current employees.  Iowa courts have developed a three-part test to determine whether a non-compete agreement is enforceable:

1.  Is it necessary for the protection of the employer’s business?

Factors to consider:  Does the employee have a great deal of personal contact with customers?  Is the employee in a position to lure customers away?  Have you spent significant time and money training the employee?

2. Is the non-compete unreasonably restrictive of the employee’s rights

Factors to consider:  Is the non-compete limited in time?  The most common time restrictions are 1-3 years.  Courts tend to favor shorter time restrictions.  (This will always depend on the cirmcumstances of the particular case).

Is the non-compete limited in geographic scope?  For a local business, a 50-mile limit may be reasonable while a regional business may use a scope spread out over several states.  It depends on the market area of the particular business.  Because of the Internet and other technologies, geographic limits are becoming a less effective way to control competition from former employees.  Businesses must carefully consider how to be reasonable and still control competition in the global marketplace.

3. Is the non-compete prejudical to the public interest

Factors to consider:  Does the particular non-compete harm the general public?  This part of the test has rarely been used to invalidate non-competes in Iowa.  For example, non-competes in Iowa have been upheld against doctors and dentists where you might expect that limiting access to health care could harm the general public.

Finally, Iowa has adopted a "partial enforcement" doctrine permitting a court to uphold a non-compete agreement to the extent it is reasonable and allowing the Court to modify terms if necessary.  For example, a court may reduce a time restriction from 3 years to 1 year if the judge finds that is appropriate.  Or, a judge could change a geographic restriction from the entire state of Iowa to a 100-mile radius of the business.  This is different from an all or nothing approach where a judge might declare the entire non-compete agreement invalid if just one of the terms is found unreasonable.  When litigating non-compete agreements in Iowa the parties must consider whether the agreement may be partially enforced.