People often mistakenly believe that non-compete agreements are not enforceable in Iowa. Sometimes people think that because Iowa is a “right to work” state that means non-competes are not valid or other times people may have “heard” non-competes aren’t valid. Neither is correct. Non-competes in Iowa are enforceable in Iowa under appropriate circumstances.
But recently I was intrigued by some back-and-forth editorials published in the Des Moines Register questioning whether non-competes SHOULD be enforceable? One letter to the editor writer argued that Iowa should abolish enforceability of non-competes arguing that the Iowa economy would actually be enhanced by becoming a national leader in permitting employees to freely compete with their former employers. Another writer opined that non-competes are vital to the protection of business relationships and confidential information and should remain an important tool for businesses to protect their interests against employees who seek to benefit directly at the expense of the former employer.
Myself? I have been involved on both sides of the issue. I frequently draft and represent employers who seek to enforce non-competes. But almost just as frequently, I have also represented numerous employees who have sought to avoid such restrictions. So what gives? Should non-competes be enforceable or not?
I have never been a fan of non-compete agreements that prevent someone from working in the same industry as a former employer. In general, I believe that an employee should be permitted to leave an employer to compete FAIRLY against a former employer. After all, it really would be hypocritical of me to say otherwise. You see, non-competes are NOT enforceable against lawyers in Iowa. When I left my former firm about 8 years ago I took all the clients I had originated with me, except one which I voluntarily left with the firm at the time. I did not seek to take clients that were generated by other lawyers or “firm” clients which led to a very amicable parting. Neither party was harmed. I got to keep my clients and the firm and other lawyers kept their clients. Status quo.
That theory may work well for a law firm but the lines become much more blurred for many businesses. If clients left with a former employee it could significantly harm the business. That’s why in general I do believe that businesses should be able to protect their client base for a reasonable time period from walking out the door with a former employee by signing a non-compete. And if someone is selling their business, the buyer should absolutely be able to obtain the benefit of the bargain by expecting that a seller will not immediately turn around and take back clients from a business the seller just sold. (Even in California non-competes against business sellers are enforceable).
But abuse occurs when employers attempt to overreach with the protections of a non-compete. Like businesses who attempt to enforce non-competes against lower-wage / level employees who have no client relationships. For example, let’s say a janitor wants to leave his employer for a company that will pay him a higher hourly wage. Is it really reasonable to enforce a non-compete when the janitor has never spoken to an actual client of the employer and does nothing but show up to perform his work? Opposed to a sales person has frequent client contact and could potentially take janitorial clients to another company?
And would it is really fair to prevent a former employee to work in an industry completely when they do not attempt to take any of the former employer’s clients whatsoever? Or, what about a franchisee who has given 10 years to a franchiser but decides not to renew a franchise agreement?
An alternative to non-compete agreements is to have agreements that protect the IP of your company without restricting the former employee’s ability to work in an industry. Use of IP agreements may adequately protect the business interests of an employer in certain circumstances without restricting the former employee’s ability to work in an industry. Problem solved?
So what do you think? Feel free to share your general thoughts on the issues involving non-compete issues. Should we keep them enforceable in Iowa or is the current non-compete law acceptable? Like me, do you think it varies upon the circumstances? Or, do you take a more bright-line approach?