Employee Non-Compete Agreement and Enforceability Memo — Iowa

IOWA Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

Part A — Enforceability Memo

MEMORANDUM

To: [________________________________]
From: [________________________________], Iowa Bar No. [_____]
Date: [__/__/____]
Re: Enforceability of Non-Compete Agreement Under Iowa Law — [EMPLOYEE NAME]

I. Executive Summary

This memorandum analyzes the enforceability of the attached employee non-compete covenant under Iowa law. Iowa has no general non-compete statute; enforceability is governed by common-law reasonableness as set forth in Iowa Glass Depot, Inc. v. Jindrich, 338 N.W.2d 376 (Iowa 1983), and Lamp v. American Prosthetics, Inc., 379 N.W.2d 909 (Iowa 1986).

Bottom-line assessment: ☐ Likely enforceable as drafted ☐ Likely enforceable after judicial reformation ☐ Unenforceable risk — redraft recommended

II. Governing Standard

Iowa courts apply a three-prong test (Lamp):

1. The restraint must be reasonably necessary to protect the employer's legitimate business interest;
2. The restraint must not be unreasonably restrictive of the employee's rights; and
3. The restraint must not be prejudicial to the public interest.

Within prong (1), Iowa courts evaluate four Iowa Glass Depot factors:

(a) The employee's closeness to customers;
(b) The employee's "peculiar knowledge gained through employment that provides a means to pirate the customer";
(c) The amount and sophistication of employer-provided training and the nature of the business; and
(d) Matters of basic fairness.

III. Application to [EMPLOYEE NAME]

IV. Consideration Analysis

Iowa courts hold that continued at-will employment is sufficient consideration for a non-compete signed during employment. See Iowa Glass Depot, 338 N.W.2d at 380. An employer is not required to provide additional consideration (raise, bonus, promotion) to support a mid-employment non-compete, though best practice is to do so to bolster fairness analysis under the fourth Iowa Glass Depot factor.

V. Judicial Reformation, Not Blue-Pencil

Iowa courts have expressly declined to adopt the blue-pencil doctrine but routinely modify overbroad covenants by reducing duration, narrowing geography, or limiting the scope of restricted activity. See Ehlers v. Iowa Warehouse Co., 188 N.W.2d 368, 373 (Iowa 1971). However, a "deliberately unreasonable and oppressive" covenant may be voided in its entirety with no reformation. Draft conservatively.

VI. Public-Interest Concerns (Healthcare, Professionals)

Iowa has no statutory ban on physician non-competes, but courts weigh public-interest considerations heavily where restrictions limit patient access to specialty care. See Phone Connection, Inc. v. Harth, 482 N.W.2d 442 (Iowa Ct. App. 1992). For attorneys, Iowa Rule of Professional Conduct 32:5.6 prohibits non-competes restricting the practice of law.

VII. Federal Overlay

The FTC's Non-Compete Rule, 16 C.F.R. Part 910 (issued April 23, 2024, effective September 4, 2024), would ban most employee non-competes nationwide. Multiple federal lawsuits have stayed/enjoined enforcement. Verify current status of the rule before relying on this covenant in any new agreement.

VIII. Recommendation

☐ Execute as drafted
☐ Modify as follows before execution: [________________________________]
☐ Do not execute — material risk of non-enforcement

Part B — Non-Compete Agreement

EMPLOYEE NON-COMPETITION AGREEMENT
(Governed by Iowa Law)

This Employee Non-Competition Agreement ("Agreement") is entered into as of [__/__/____] by and between [EMPLOYER LEGAL NAME], a [STATE] [ENTITY TYPE] with its principal place of business at [________________________________] ("Company"), and [EMPLOYEE NAME], an individual residing at [________________________________] ("Employee").

1. Recitals and Consideration

Company is engaged in the business of [________________________________] (the "Business"). Employee will receive or has received [☐ initial employment ☐ continued employment ☐ promotion to [_____] ☐ a one-time payment of $[_____] ☐ access to confidential information and customer relationships]. Employee acknowledges this consideration is adequate and bargained-for under Iowa law (Iowa Glass Depot, Inc. v. Jindrich, 338 N.W.2d 376 (Iowa 1983)).

2. Definitions

3. Non-Competition Covenant

During the Restricted Period and within the Restricted Territory, Employee shall not, directly or indirectly, engage in the Restricted Business in a capacity substantially similar to Employee's role with Company.

4. Non-Solicitation of Customers

During the Restricted Period, Employee shall not solicit or accept business from any Customer for the purpose of providing services or products competitive with the Restricted Business.

5. Non-Solicitation of Employees

During the Restricted Period, Employee shall not solicit, recruit, or hire any then-current employee of Company with whom Employee worked during the final 12 months.

6. Confidentiality

Employee shall hold all Confidential Information in trust and shall not disclose or use it except for Company's benefit. This obligation survives termination indefinitely as to trade secrets and for [_____] years as to other Confidential Information.

7. Reasonableness Acknowledgment

Employee acknowledges that the restrictions in this Agreement are reasonable in duration, geographic scope, and scope of activity, are necessary to protect Company's legitimate business interests, and do not impose undue hardship under Iowa Glass Depot and Lamp v. American Prosthetics, 379 N.W.2d 909 (Iowa 1986).

8. Judicial Modification

The parties agree that if any court finds any provision of this Agreement unenforceable as written, the court is authorized to modify the duration, geographic scope, or scope of activity to the minimum extent necessary to render it enforceable consistent with Iowa law (judicial reformation; Ehlers v. Iowa Warehouse Co., 188 N.W.2d 368 (Iowa 1971)).

9. Remedies

Employee acknowledges that breach will cause irreparable harm not adequately remediable by money damages. Company is entitled to seek temporary, preliminary, and permanent injunctive relief, in addition to damages and reasonable attorneys' fees if Company prevails.

10. Governing Law and Venue

This Agreement is governed by Iowa law without regard to conflict-of-laws principles. Exclusive venue lies in [______] County District Court, Iowa, or the U.S. District Court for the [Northern/Southern] District of Iowa.

11. Severability and Survival

If any provision is held void, the remaining provisions remain in effect. Sections 3–9 survive termination of employment.

12. Entire Agreement

This Agreement, together with [________________________________], constitutes the entire agreement on this subject and supersedes all prior agreements.

13. FTC Non-Compete Rule Acknowledgment

If the FTC Non-Compete Rule (16 C.F.R. Part 910) becomes effective and applies to Employee, Sections 3 and 4 may become unenforceable as to non-senior-executive employees. The remaining sections (5, 6) remain in full force as they are not "non-compete clauses" under the rule.

SIGNATURES

Part C — Pre-Signing Checklist

☐ Confirm Employee's role generates one of the four Iowa Glass Depot protectable interests (customer closeness, peculiar knowledge, training, basic fairness)
☐ Restricted Period set at minimum necessary; not exceeding 24 months absent extraordinary facts
☐ Restricted Territory tied to actual counties/areas where Employee worked
☐ Restricted Business narrowly defined to actual competing products/services
☐ Consideration documented (offer, continued employment, raise, bonus, equity, or access to Confidential Information)
☐ If mid-employment, consider providing additional consideration to strengthen "basic fairness" factor
☐ Public-interest concerns evaluated (healthcare, professional services)
☐ Confirm Employee is not licensed Iowa attorney (Rule 32:5.6 prohibits)
☐ FTC Non-Compete Rule status verified as of execution date
☐ Employee given reasonable opportunity to review and consult counsel
☐ Companion confidentiality and invention assignment agreements in place
☐ Choice-of-law and venue clauses align with Iowa
☐ Reformation/modification clause included (NOT blue-pencil language)
☐ Survival, severability, integration clauses present
☐ Signed copy provided to Employee and retained in personnel file

Sources and References

• Iowa Glass Depot, Inc. v. Jindrich, 338 N.W.2d 376 (Iowa 1983) — https://law.justia.com/cases/iowa/supreme-court/1983/69247-0.html
• Ag Spectrum Co. v. Elder, 865 F.3d 1088 (8th Cir. 2017)
• Lamp v. American Prosthetics, Inc., 379 N.W.2d 909 (Iowa 1986)
• Ehlers v. Iowa Warehouse Co., 188 N.W.2d 368 (Iowa 1971)
• Phone Connection, Inc. v. Harth, 482 N.W.2d 442 (Iowa Ct. App. 1992)
• Iowa Rule of Professional Conduct 32:5.6
• FTC Non-Compete Rule, 16 C.F.R. Part 910 — https://www.ftc.gov/legal-library/browse/rules/noncompete-rule
• Drake Law Review, "Drafting and Enforcing Non-Compete Clauses in Iowa" — https://drakelawreview.org/wp-content/uploads/2016/08/harty-stefani-final.pdf