The end of noncompete agreements? What the impact could be in Iowa

A ruling by the Federal Trade Commission banning noncompete agreements as a condition of employment is getting mixed reviews from organized labor and business interests, which sued Wednesday to block it from taking effect.

Whatever the outcome, it may have very little impact in Iowa, according to a Des Moines attorney who specializes in noncompete agreement cases.

The agreements, generally signed as part of employment contracts, typically forbid workers who leave a job from going immediately to work for one of their former employers' competitors.

Democrats and organized labor hailed the FTC's Tuesday decision, saying noncompete agreements restrict workers’ opportunities and can infringe on other fundamental rights by blocking them from changing jobs.

"Noncompete agreements keep workers trapped from finding better opportunities, can force workers to move to stay in their industry and can come with large penalties," said Peter Hird, secretary treasurer of the Iowa Federation of Labor, AFL-CIO. "Nationally and locally, Democrats and Republicans have seen this as a problem and proposed legislation. This is not a partisan issue and we are thankful for the Federal Trade Commission's work on this rule."

Republicans on the FTC, which approved the measure on a 3-2, party-line vote, said the commission overstepped its bounds with the ban, acting as though it was a legislature making a new law rather than a regulator determining how existing rules should be enforced.

Mike Ralston, president of the Iowa Association of Business and Industry, concurred, saying the FTC’s ruling banning noncompete agreements “seems like an overreach to me. I think it's dangerous for the commission to be making a law that affects what has been standard practice.”

But the lack of legislative action on noncompete agreements is kind of the point, according to Charlie Wittmack, a Des Moines attorney who represents clients challenging noncompete agreements.

“Noncompete agreements are a creation of employers and it's not a creation of the legislature," Wittmack said.. "The legislature didn't create the right for employers to create noncompete agreements. Employers came up with this concept, and because employers came up with it, courts had to determine if they were fair and legal.”

He said that over the years, about 40 cases regarding noncompete agreements have made it to the Iowa Supreme Court, with the justices splitting 50-50 in their decisions about whether the requirements were enforceable.

“In Iowa, the cases where the Iowa Supreme Court has enforced noncompete agreements, there is always some underlying independent legal theory. These cases are very, very fact specific,” he said.

Attorney: Iowa law remains even after noncompete agreements go away

Wittmack said there are three primary kinds of noncompete cases in Iowa:

• Those where an employer has put an employee in a situation of trust and confidence with a client and does not want the employee, after departing, to take that relationship to a competitor.

• Trade secret cases where employees have sensitive information learned through their employment. The Iowa Supreme Court has ruled that employees are unlikely to go to another job and not use information they gained under a previous employer, Wittmack said.

• Training cases where employers have paid for employees to earn a license or certification that is related to the performance of their jobs. Wittmack said the Iowa Supreme Court has held that it would be unfair for an employee to take the benefit of that training to a competitor of the company that paid for it.

Wittmack said that in all three scenarios, restrictions on employees would likely still be enforceable after the FTC rule goes into effect because other laws apply. For instance, the cases involving an employee taking a customer relationship or a trade secret to a competitor would still be subject to the Iowa Trade Secrets Act. And the case where an employee takes to a competitor skills learned at the previous employer's expense could be viewed as a breach of contract, especially if in exchange for the training, the employee had agreed to remain with the employer for certain period.

“In Iowa, my legal opinion is that not much is going to change after the FTC rule goes into effect because the Iowa Supreme Court has been addressing noncompete agreements in a very fair way for a long time," requiring the agreements to be based on existing laws, Wittmack said.

Moving forward, employers are likely to drop noncompete agreements and instead turn to employment contracts that address trade secrets, customer relationships and training, he said.

Nurse practitioner: Health care doesn't have 'trade secrets'

Where noncompete agreements continue to be a fuzzy issue is in the field of health care when patients continue to see a medical provider who has changed employers.

Nurse practitioner Jacy Kennedy of Ottumwa, a client of Wittmack, has firsthand knowledge of that complicated situation. In a lawsuit, she claims she was wrongly terminated by All Ages Pediatrics in Ottumwa, and that noncompete language in her employment agreement is “unreasonably restrictive” of her rights. The lawsuit seeks damages as well as a judgment declaring the noncompete language to be unenforceable.

Kennedy said that for her, it's simply a matter of being able to help people in the community she grew up in.

“I would say at the root cause of all of this (noncompete agreements) in regard to health care, it's just really overall effects, and it hurts the patients. I think that's really the issue here and why there's a concern in health care with a noncompete,” said Kennedy, who now practices at Bloom Pediatrics in Ottumwa.

The lawsuit, filed for Kennedy by Wittmack, notes that the Iowa Department of Public Health has designated Wapello County as suffering from a critical shortage of health care workers.

“All I'm trying to do is continue. That's sort of the beauty of health care. Everybody gets to choose the provider that they want to see," Kennedy said. "That's how that should work. You should be able to choose the provider that you feel works best with you, addresses your concerns and that you're most comfortable with, whether that's yourself or your children or your family.

“So really with these noncompete we're taking that that choice away from the families, so that's a detriment, you know to the family or the patient,” she said.

She said she can understand the need for noncompete agreements in some occupations, but that health care doesn’t have “trade secrets.”

“Here it's health care. You practice the same really anywhere you go," said Kenney, adding that by barring a qualified professional from working for another employer in the same area, "You're punishing the patients and that's kind of... just the bottom line.”

Wittmack points to a former case of his where a group of three urologists were fired from a clinic and because of noncompete agreements were unable to continue treatment and follow-up on more than 2,600 appointments. The case ultimately was settled with a nondisclosure agreement.

Wittmack said Iowa law provides for a public interest exception that can come into play on issues like health care, “and that says that even if it's a customer case, even if it's a trade secret case, even if it's a training case, you still can't enforce a noncompete agreement if it's violative of the public's interest.”

Reuters contributed to this article.

Kevin Baskins covers jobs and the economy for the Des Moines Register. Reach him at kbaskins@registermedia.com.

This article originally appeared on Des Moines Register: FTC ban on noncompete agreements may not change much in Iowa, lawyer says