Wednesday, December 3, 2008

Iowa Employment Non-Compete Clauses

Iowa is one of the more pro-employer states when it comes to restrictive employment covenants. Generally, Iowa courts will uphold agreements that preclude former employees from competing with an employer (with limited duration and limited area--such as 12 months and within a 100 mile radius of the job site). However, a recent Iowa appeals court decision may be a sign that our courts are beginning to take a more critical view of these types of agreements.

Dr. Thomas Warren was employed as an assistant professor at the University of Iowa and, as part of his job duties, he was required to spent part of every year working as an oncologist at the the University of Iowa's Hospital. When he was hired, Dr. Warren executed an employment contract that included a covenant not to compete and/or practice medicine for a two year period in, essentially, a 50 mile radius of the University. Four years later, Dr. Warren left the University and went into private practice in Cedar Rapids within the 50 mile radius.

The University sued Dr. Warren seeking an injunction to stop him from practicing medicine; however, the trial court denied the University's request. Both the trial court and the appellate court set forth the long-held legal standard regarding restrictive covenants, which is: (1) whether the restriction is "reasonably necessary" for the protection
of the employer's business; (2) whether it is "unreasonably restrictive" of the employee's rights; and (3) whether it is "prejudicial" to the public interest.

Normally, Iowa courts recite this standard before generally enforcing the covenant in front of them but, in this case, both courts found that the University failed to satisfy this test. Specifically, the University was unable to convince the courts that it was reasonably necessary to have a restrictive covenant and that, as a practicing physician, it was prejudicial to the public interest to preclude Dr. Warren from practicing medicine.

This case may yet be reversed by the Iowa Supreme Court but, if this decision stands, it may signal the beginning of a shift in the ability of employers to keep former employees from directly competing with them. For more information on this case, see The Board of Regents, State of Iowa and the University of Iowa vs. Dr. Thomas Warren, Iowa Court of Appeals, November 26, 2008.

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