Are non-compete agreements still valid in Iowa?

In May of this year, the Federal Trade Commission issued a rule banning most non-compete agreements in the United States except for senior leadership earning more than $151,000 a year and win policymaker positions, and non-compete agreements in the sale of a business.

Non-compete agreements prevent workers from competing with their employer after their employment ends. The agreements are believed to ensure that the employee will not use information learned during employment to start a business to compete with his or her former employer.

However, a Texas federal court issued a permanent preliminary injunction in August 2024, blocking the rule from taking effect in certain cases, arguing that the FTC may have overstepped its authority in creating this rule.

The judge held Congress did not give the FTC authority to issue rules with respect to alleged unfair methods of competition under the FTC Act. The judge also found that the FTC relied on one-sided evidence of non-compete agreements’ economic impact, failing to consider the positive benefits of non-competes.

Accordingly, employers can continue to negotiate and enforce non-compete agreements with their employees.

Besides continuing to monitor this non-compete litigation, employers are advised to review and inventory their existing non-compete agreements, and consider alternative legal protections, like strong business information confidentiality provisions, nondisclosure agreements or non-solicitation agreements.

Finally, because many employers find enforcement of such non-compete agreements time-consuming and expensive, employers should consider using jury waivers and attorney fee and court cost shifting provisions for such employment agreements to dissuade employees from taking confidential business information, coworkers and clients to their new employer or business.

Wilford H. Stone is a lawyer with Lynch Dallas in Cedar Rapids. Comments: (319) 365-9101; wstone@lynchdallas.com