Senate File 426 - Introduced SENATE FILE 426 BY DONAHUE A BILL FOR An Act relating to prohibitions on noncompete covenants 1 involving nurses and including applicability provisions. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 1990XS (2) 90 je/rn
S.F. 426 Section 1. Section 84A.5, subsection 4, Code 2023, is 1 amended to read as follows: 2 4. The division of labor services is responsible for the 3 administration of the laws of this state under chapters 88 , 4 88A , 88B , 89 , 89A , 89B , 90A , 91 , 91A , 91C , 91D , 91E , 92 , and 5 94A , and 95, and sections 73A.21 and 85.68 . The executive head 6 of the division is the labor commissioner, appointed pursuant 7 to section 91.2 . 8 Sec. 2. Section 91.4, subsection 2, Code 2023, is amended 9 to read as follows: 10 2. The director of the department of workforce development, 11 in consultation with the labor commissioner, shall, at the 12 time provided by law, make an annual report to the governor 13 setting forth in appropriate form the business and expense of 14 the division of labor services for the preceding year, the 15 number of remedial actions taken under chapter 89A , the number 16 of disputes or violations processed by the division and the 17 disposition of the disputes or violations, and other matters 18 pertaining to the division which are of public interest, 19 together with recommendations for change or amendment of the 20 laws in this chapter and chapters 88 , 88A , 88B , 89 , 89A , 89B , 21 90A , 91A , 91C , 91D , 91E , 92 , and 94A , and 95, and section 22 85.68 , and the recommendations, if any, shall be transmitted 23 by the governor to the first general assembly in session after 24 the report is filed. 25 Sec. 3. NEW SECTION . 95.1 Definitions. 26 For purposes of this chapter: 27 1. Commissioner means the labor commissioner appointed 28 pursuant to section 91.2. 29 2. Covenant not to solicit means an agreement that is 30 entered into between an employer and an employee that does any 31 of the following: 32 a. Restricts the employee from soliciting for employment the 33 employers employees. 34 b. Restricts the employee from soliciting, for the 35 -1- LSB 1990XS (2) 90 je/rn 1/ 5
S.F. 426 purpose of selling products or services of any kind to, or 1 from interfering with the employers relationships with, the 2 employers clients, prospective clients, vendors, prospective 3 vendors, suppliers, prospective suppliers, or other business 4 relationships. 5 3. Earnings means the compensation, including earned 6 salary, earned bonuses, earned commissions, or any other form 7 of taxable compensation, reflected or that is expected to 8 be reflected as wages, tips, and other compensation on the 9 employees internal revenue service form W-2 plus any elective 10 deferrals not reflected as wages, tips, and other compensation 11 on the employees internal revenue service form W-2, such as, 12 without limitation, employee contributions to a 401(k) plan, a 13 403(b) plan, a flexible spending account, or a health savings 14 account, or commuter benefit-related deductions. 15 4. Employee means a person licensed and employed as a 16 registered nurse or an advanced registered nurse practitioner 17 under chapter 152 or 152E. 18 5. a. Noncompete covenant means an agreement between an 19 employer and an employee that is entered into that restricts 20 the employee from performing: 21 (1) Any work for another employer for a specific period of 22 time. 23 (2) Any work in a specified geographical area. 24 (3) Work for another employer that is similar to any 25 employees work for the employer included as a party to the 26 agreement. 27 b. Noncompete covenant also means an agreement between 28 an employer and an employee that by its terms imposes adverse 29 financial consequences on the former employee if the employee 30 engages in competitive activities after the termination of the 31 employees employment with the employer. 32 c. Noncompete covenant does not include any of the 33 following: 34 (1) A covenant not to solicit. 35 -2- LSB 1990XS (2) 90 je/rn 2/ 5
S.F. 426 (2) A confidentiality agreement or covenant. 1 (3) A covenant or agreement prohibiting use or disclosure 2 of trade secrets or inventions. 3 (4) Invention assignment agreements or covenants. 4 Sec. 4. NEW SECTION . 95.2 Impermissible noncompete 5 covenants. 6 The following noncompete covenants are void and violate this 7 chapter: 8 1. A noncompete covenant within an employment agreement 9 or contract in which an employees earnings are less than one 10 hundred fifty percent of the state or federal minimum wage. 11 2. A noncompete covenant with an employee unless the 12 employer can show beyond a preponderance of the evidence that 13 there is a clear and inherent risk of unfair competition 14 absent the noncompete covenant and the noncompete covenant 15 was narrowly tailored to address the risk in restrictions to 16 geographic area and duration of the noncompete covenant. 17 Sec. 5. NEW SECTION . 95.3 Exceptions. 18 1. A covenant or agreement entered into by a person that 19 sells the goodwill of a business and the persons partners, 20 members, or shareholders may agree with the buyer to refrain 21 from carrying on a similar business within a reasonable 22 geographic area and for a reasonable length of time, if the 23 buyer or any person deriving title to the goodwill from the 24 buyer carries on a like business in that area. 25 2. A covenant or agreement entered into by partners, 26 members, or shareholders, upon or in anticipation of a 27 dissolution of a partnership, limited liability company, or 28 corporation; upon or in anticipation of a dissociation of a 29 partner or member; or as part of an agreement addressing the 30 dissociation or sale of a partner, member, or shareholder's 31 ownership interest, may agree that all or any number of them 32 will not carry on a similar business within a reasonable 33 geographic area where the partnership, limited liability 34 company, or corporation business has been transacted, or within 35 -3- LSB 1990XS (2) 90 je/rn 3/ 5
S.F. 426 a specified part of the area. 1 Sec. 6. NEW SECTION . 95.4 Remedies. 2 1. In addition to any remedies available under any agreement 3 between the employer and the employee or under any other 4 statute, in a civil action, if an employer is found to have 5 violated this chapter, the employee shall recover from the 6 employer all reasonable attorney fees regarding an attempt to 7 enforce a noncompete covenant, court costs, lost wages, and 8 at the discretion of the court, liquidated damages of up to 9 triple the amount of lost wages for willful violations of this 10 chapter. 11 2. An employer found to have violated this chapter may be 12 fined a five thousand dollar civil penalty per violation by the 13 commissioner. Penalties shall be paid to the commissioner and 14 transferred to the general fund. 15 Sec. 7. NEW SECTION . 95.5 Rules. 16 The commissioner shall adopt rules pursuant to chapter 17A 17 to administer and enforce this chapter. 18 Sec. 8. APPLICABILITY. This Act applies to covenants not 19 to compete entered into on or after the effective date of this 20 Act. 21 EXPLANATION 22 The inclusion of this explanation does not constitute agreement with 23 the explanations substance by the members of the general assembly. 24 This bill relates to noncompete covenants, as defined in the 25 bill, contained within employment contracts involving nurses 26 and provisions that are prohibited and void. 27 The bill provides that if a person employed as a registered 28 nurse or an advanced registered nurse practitioner makes less 29 than 150 percent of the minimum wage, a noncompete covenant is 30 unenforceable and violates the bill. The bill provides that 31 a noncompete covenant with an employee who exceeds that wage 32 threshold is unenforceable and violates the bill unless the 33 employer can show that the noncompete covenant is necessary 34 due to a clear and inherent risk of unfair competition and the 35 -4- LSB 1990XS (2) 90 je/rn 4/ 5
S.F. 426 noncompete covenant was narrowly tailored to mitigate the risk. 1 The bill includes exceptions to these provisions. 2 A prevailing employee is entitled to recover reasonable 3 attorney fees, court costs, lost wages, and at the discretion 4 of the court, liquidated damages of up to triple the amount of 5 lost wages for willful violations of the bill. An employer 6 found to be in violation of the bill is subject to a $5,000 7 penalty per violation payable to the labor commissioner for 8 deposit in the general fund. 9 The bill applies to covenants not to compete entered into on 10 or after the effective date of the bill. 11 -5- LSB 1990XS (2) 90 je/rn 5/ 5