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Terms of Employment: Iowa

Terms of Employment requirements for other states

Federal law and guidance on this subject should be reviewed together with this section.

Authors: Stuart R. Buttrick, Susan W. Kline and Angela Morales, Faegre Baker Daniels LLP

Summary

Independent Contractor and Employee Classification

The importance of properly classifying workers as employees versus independent contractors cannot be overstated. Iowa law imposes significant penalties on employers that evade insurance, tax and other obligations by misclassifying employees as independent contractors.

A contract with a worker stating that the worker is an independent contractor does not establish an independent contractor relationship. Instead, Iowa applies the right of control test to determine whether the relationship is an employment or independent contractor relationship. If the employer has the right to control and direct the worker not only as to the result, but also as to the means by which the result is accomplished, an employment relationship exists. See +871 Iowa Admin. Code § 23.19.

The following are additional factors that tend to show an employment relationship:

  • The right to discharge or terminate the employee;
  • The furnishing of tools, equipment, materials and a place to perform the work;
  • The individual does not have a distinct trade, occupation, business or professional service;
  • The individual does not have the right to employ assistants, delegate the work to those assistants and exclusively supervise those assistants; and
  • Payment of a fixed wage on an hourly or weekly basis instead of a set amount to complete a specified job.

See +871 Iowa Admin. Code § 23.19.

In 2008, a Misclassification Task Force convened in Iowa to study independent contractor misclassification issues. The Task Force concluded that employer misclassification of an employee as an independent contractor is a serious threat to the state and recommended enhanced enforcement. Misclassification affects employer liability for unemployment compensation, worker's compensation coverage, tax liabilities and obligations, and employee protections under other laws.

Recent enhanced enforcement efforts include the creation of a Misclassification Unit within Iowa Workforce Development and the targeting of these issues by other regulatory agencies. Misclassification subjects employers to significant penalties and criminal liability. The Misclassification Unit's website provides information about these issues, including the Task Force's reports and a form to report misclassification. See Types of Employers and Workers > Independent Contractors: Iowa.

Iowa's minimum wage law addresses volunteers providing services to public agencies and specifies the circumstances in which such volunteers will not be considered employees for purposes of the statute. See +875 Iowa Admin. Code § 220.100 through +875 Iowa Admin. Code § 220.106.

Iowa Civil Rights Act

The Iowa Civil Rights Act (ICRA) prohibits employers from refusing to hire, discharging or otherwise discriminating against employees on the basis of the following protected characteristics:

  • Age (18 or over);
  • Race;
  • Color;
  • Sex;
  • National origin;
  • Religion;
  • Creed;
  • Disability;
  • Sexual orientation; and
  • Gender identity.

See +Iowa Code § 216.6; +Iowa Code § 729.6. See Employee Management > EEO - Discrimination: Iowa.

The ICRA also covers employment agencies and labor organizations.

The ICRA does not apply to:

  • Employers that "regularly employ" less than four employees;
  • Employment for work within the employer's home if the employer or the employer's family resides in the home during the employment; and
  • Employment to provide personal service to "the person of the employer" or the employer's family.

See +Iowa Code § 216.6(5).

In addition, the ICRA limits its application in certain specific respects with regard to:

  • Bona fide religious institutions and their educational facilities with respect to employment qualifications based on gender identity, sexual orientation or religion if those qualifications are related to a bona fide religious purpose. +Iowa Code § 216.6(6)(d). The statute provides a presumption that a religious qualification for certain instructors and administrative officers in bona fide religious institutions or educational facilities is a bona fide occupational qualification.
  • Apprenticeship programs.
  • A "state or federal program designed to benefit a specific age classification which serves a bona fide public purpose."

See +Iowa Code § 216.6(4)-(6).

The ICRA provides broader protections for employees than federal antidiscrimination statutes in certain respects. For instance, the ICRA includes sexual orientation and gender identity. In addition, the protected age category under the ICRA applies to employees who are 18 or over.

Further, the ICRA specifically provides that disability includes a positive HIV test result, diagnosis of AIDS or AIDS-related complex and any condition related to AIDS. See +Iowa Code § 216.2(5).

The ICRA also:

Employer policies should expressly state that employees and applicants will not be discriminated against on the basis of any protected category. +161 Iowa Admin. Code § 8.30(1) , +161 Iowa Admin. Code § 8.51(1).

The ICRA, including numerous regulations issued by the Iowa Civil Rights Commission under the Act, specifically regulates the hiring process, job advertisements, bona fide occupational qualifications and other issues concerning discrimination. See +161 Iowa Admin. Code 8.1 ; Recruiting and Hiring > Interviewing and Selection: Iowa; Recruiting and Hiring > Recruiting: Iowa.

Other Statutes That Affect the Terms of Employment

Numerous additional Iowa statutes and laws affect the terms of employment, including:

  • The Iowa Civil Rights Act (+Iowa Code § 216.6) prohibits employers from refusing to hire, discharging or otherwise discriminating against employees and applicants because of age, race, creed, color, sex, sexual orientation, gender identity, national origin, religion and disability. The ICRA's prohibitions affect inquiries, background checks and preemployment tests that can be performed during the hiring process;
  • Iowa law specifically addresses genetic testing (+Iowa Code § 729.6), drug and alcohol testing (+Iowa Code § 730.5), AIDS/HIV testing (+Iowa Code § 216.6(1)(d)) and polygraph examinations (+Iowa Code § 730.4). Employers generally may not request or require a polygraph examination, AIDS/HIV test or genetic test or refuse to hire applicants because of such a test. Private employers that wish to administer drug or alcohol tests must comply with the detailed requirements of Iowa's drug testing statute. See Recruiting and Hiring > Preemployment Screening and Testing: Iowa
  • Iowa recognizes multiple causes of action for violations of privacy, including misappropriation/right of publicity, false light, publication of private facts and intrusion;
  • The Smokefree Air Act (+Iowa Code § 142D.1 et seq.) generally prohibits smoking in public places and enclosed areas within places of employment. Under the Act, employers are required to post certain notices and to notify all employees and applicants of the smoking prohibition. The Act also prohibits retaliation against employees and applicants for exercising rights or bringing a complaint under the statute;
  • Iowa law prohibits discrimination "against any officer or enlisted person of the national guard or organized reserves of the armed forces of the United States or any member of the civil air patrol because of that membership," and prohibits termination because an employee is an "officer or enlisted person of the military forces of the state or member of the civil air patrol." The law also forbids employers from hindering service. See +Iowa Code § 29A.43; and
  • Iowa law prohibits the denial of employment to any person because of union membership or affiliation. See +Iowa Code § 731.2.

Further, Iowa law prohibits an employer from knowingly hiring an applicant who is not authorized to be employed in the US or uses forged documentation. The Iowa Civil Rights Act prohibits discrimination on the basis of national origin. In addition, Iowa law also imposes special requirements on employers with respect to migrant workers and non-English speaking employees. See Recruiting and Hiring > Preemployment Screening and Testing: Iowa; Recruiting and Hiring > Employment Offer: Iowa.

Public agencies and contractors should be aware of any additional nondiscrimination or affirmative action requirements imposed by state laws, including Iowa Code Chapter 19B and Governor Robert D. Ray's Executive Order No. 15. See +161 Iowa Admin. Code § 8.65.

In addition to the ICRA and those statutes noted above, other Iowa laws also restrict employment decisions, including, for example:

  • Various Iowa statutes prohibit employers from retaliating against an employee for the employee's exercise of rights under the statute, including, for example, the Iowa Civil Rights Act (+Iowa Code § 216.1 et seq.), the statute prohibiting genetic testing (+Iowa Code § 729.6), Iowa's occupational safety and health law (+Iowa Code § 88.9(3)), Iowa's wage payment collection law (+Iowa Code § 91A.10), and the Smokefree Air Act (+Iowa Code § 142D.1 et seq.). In addition, Iowa law recognizes a narrow exception to the at-will employment doctrine where the employee's discharge contravenes the state's clear and well-defined public policy. Fitzgerald v. Salsbury Chemical, Inc., +613 N.W.2d 275, 281 (Iowa 2000). Iowa also has whistleblower statutes pertaining to public employees. See, e.g., +Iowa Code § 8A.417, +Iowa Code § 70A.28 , +Iowa Code § 70A.29);
  • Iowa law prohibits termination on the basis that the employee's wages were garnished. See +Iowa Code § 642.21(2)(c);
  • An employer cannot terminate an employee because of jury duty. See +Iowa Code § 607A.45.
  • Employees must be given time off work to vote (depending upon their work schedule in relation to poll hours) and may not be penalized because of the absence. See +Iowa Code § 49.109;
  • Employees cannot be terminated for an absence to attend a required drunk driver's course. See +Iowa Code § 321J.22; and
  • Public employees may have additional statutory protections against discharge under various Iowa statutes, including, for example, the civil service statute for cities (Iowa Code Chapter 400) and the state merit system (Iowa Code Chapter 8A). See, e.g., +Iowa Code § 341A.12 (deputy county sheriffs); +Iowa Code § 279.24 (school administrators); +Iowa Code § 35C.6 (veterans).

At-Will Employment and Exceptions

Under Iowa law, employment is presumed to be at-will. Unless an exception to the at-will employment doctrine exists, employment can be terminated at any time for any lawful reason. See Jones v. Lake Park Care Ctr., Inc., +569 N.W.2d 369 (Iowa 1997); Fitzgerald v. Salsbury Chemical, Inc., +613 N.W.2d 275 (Iowa 2000).

Although Iowa courts recognize public policy wrongful termination and unilateral handbook contracts as exceptions to the at-will employment doctrine, Iowa courts have repeatedly rejected a covenant of good faith and fair dealing exception in the employment context. See, e.g., French v. Foods, Inc., +495 N.W.2d 768 (Iowa 1993). Nonetheless, numerous Iowa statutes and laws restrict termination and other employment decisions.

Handbooks and Unilateral Contracts

Under Iowa law, employers are bound by guarantees in handbooks and policies that promise termination will occur only for cause or other specified circumstances.

General Requirements

Promises in a handbook or policy may create a unilateral contract and alter the at-will status when the following three elements are present:

  • The handbook or policy is "sufficiently definite in its terms to create an offer";
  • The handbook or policy is communicated to the employee and accepted by the employee to create acceptance of the offer; and
  • The employee provides consideration by, for example, continuing to work.

See Anderson v. Douglas & Lomason Co., +540 N.W.2d 277 (Iowa 1995); Thompson v. City of Des Moines, +564 N.W.2d 839 (Iowa 1997).

As a general rule, in order to establish a unilateral contract, it is necessary that the employee has knowledge of the offer and the employer's promise induced the employee's performance. However, in the handbook context, the Iowa Supreme Court has held that an employee who received the employee handbook, but did not read it was not barred from relying on the handbook to establish an implied contract. Anderson v. Douglas & Lomason Co., +540 N.W.2d 277 (Iowa 1995). In another case, a federal court applying Iowa law held the communication element was not satisfied because the handbook had not been distributed to employees. See Kartheiser v. American Nat'l Can Co., +84 F. Supp. 2d 1008 (S.D. Iowa 1999).

The test for an offer under Iowa law is objective and examines whether the words induce in the recipient a reasonable belief that the recipient can bind the sender by accepting it. An offer must be definite and the courts "look for terms with precise meaning that provide certainty of performance." See Anderson, +540 N.W.2d 277.

Thus, to determine whether a handbook creates an offer, courts examine language and context and consider whether the text is sufficiently definite and a reasonable employee would construe it as a promise instead of mere guidance. Iowa courts consider three factors in determining whether a policy or procedure in a handbook is sufficiently objectively definite:

  • Whether the handbook, and policy/procedure in the handbook that is at issue, consist of directives or whether they are mere guidelines;
  • Whether the policy/procedure is detailed and definite, or whether it is general and vague; and
  • Whether the procedures/policy can be altered by the employer at will or whether they are invariable.

Anderson, +540 N.W.2d 277. "The key to determining whether a contract has been created is whether a reasonable employee upon reading the handbook would believe they had been guaranteed certain protections by their employer." See also Jones v. Lake Park Care Ctr., Inc., +569 N.W.2d 369 (Iowa 1997).

Thus, handbooks, policies and procedures should clearly state:

  • Employment is at-will and nothing in the handbook/policy/procedure alters the at-will status of employment or creates any contractual rights;
  • The employer retains the power to alter the handbook/policy/procedure at will; and
  • The handbook/policy/procedure is being provided for purposes of providing guidance. The text used should be discretionary ("may") instead of directory ("must" or shall") and should indicate that the employer may deviate from the procedures. See Thompson v. City of Des Moines, +564 N.W.2d 839 (Iowa 1997).

Progressive discipline and other disciplinary policies should not require that specific action be taken for certain events, but rather should make clear that the policy constitutes mere guidelines and is provided for information purposes. Care should be used to ensure that the policy does not state or imply that the procedures are binding or that termination can only be for cause or upon the grounds listed. The policy should be clear that it is not exhaustive and does not restrict the employer's right to exercise its discretion. See, e.g., Jones, +569 N.W.2d 369; French v. Foods, Inc., +495 N.W.2d 768 (Iowa 1993).

Disclaimers

In order to reduce the risk of unilateral contract claims, it is very important that employee handbooks and policies include a disclaimer. In examining whether a disclaimer is sufficient to prevent a handbook from creating a contract, courts consider the disclaimer's language and context to determine whether a reasonable employee who reads the disclaimer would understand the employer has not agreed to be bound by the provisions of the handbook. Two factors are considered:

  • Whether the disclaimer is clear and states the handbook does not alter at-will employment status or create any rights; and
  • Whether the disclaimer's scope and coverage is clear and unambiguous.

See Anderson, +540 N.W.2d 277.

Thus, a disclaimer should clearly state:

  • The handbook does not create any contractual rights; and
  • The disclaimer applies to the entire handbook.

The placement of the disclaimer should be prominent and clearly emphasize it applies to all policies/procedures in the handbook by, for example, placing a disclaimer with bold, all-caps text at the beginning of the handbook. The disclaimer should not be buried in the handbook.

In addition, employers should have employees sign a statement containing a prominent disclaimer in which employees acknowledge their employment is at-will and that the employer handbook, policies and practices do not create any contractual rights or alter at-will employment status.

Public Policy Wrongful Termination

Iowa law recognizes a narrow exception to the at-will employment doctrine where the employee's discharge contravenes the state's clear and well-defined public policy. See Fitzgerald v. Salsbury Chemical, Inc., +613 N.W.2d 275 (Iowa 2000).

Public policy wrongful termination claims require the employee to prove:

  • The existence of a clearly defined public policy that protects an activity;
  • This policy would be undermined by a discharge from employment;
  • The challenged discharge was the result of participating in the protected activity; and
  • There was a lack of other justification for the termination.

Lloyd v. Drake Univ., +686 N.W.2d 225 (Iowa 2004). See Recruiting and Hiring > Employment At-Will: Iowa.

Employment Contracts

Employers and employees can contractually alter the at-will relationship. Thus, employers should use care to avoid inadvertently creating a contract if one is not intended.

Contracts require an offer and acceptance. See Anderson v. Douglas & Lomason Co., +540 N.W.2d 277 (Iowa 1995). The test for an offer under Iowa law is objective and examines whether the words create in the recipient a reasonable belief that the recipient can bind the sender by accepting it. An offer must be definite and the courts look for terms that have precise meaning providing certainty of performance.

Statements that lack essential detail do not constitute offers, because it is not reasonable to expect that the person making the statement intended to empower the recipient to bind him or her to an agreement of unknown terms. See Heartland Express, Inc. v. Terry, +631 N.W.2d 260 (Iowa 2001) (citations omitted). "This is a definiteness inquiry: if the offer is indefinite, there is no intent to be bound." See Anderson, +540 N.W.2d 277.

Offers must be certain with respect to the terms of the contract, including the promise being made by the offeror and what the recipient of the offer must provide in exchange. The terms of an oral contract must be sufficiently definite to permit the court to ascertain with certainty the parties' duties under the contract and the conditions relative to performance. See Burke v. Hawkeye Nat'l Life Ins. Co., +474 N.W.2d 110 (Iowa 1991) (holding vague promises to insurance agent about a "nest egg" were insufficient to establish oral contract that customer list belonged to agent).

Acceptance of an offer generally requires a manifestation of assent to the terms of the offer in the manner required or invited by the offer. See Heartland Express, Inc. v. Terry, +631 N.W.2d 260 (citing Restatement (Second) of Contracts § 50). As a general rule, the acceptance must be communicated to the offeror. Unless there is a "manifestation of intent to the contrary," performance effectuates acceptance of the offer if the offer invites acceptance by performance. See Magnusson Agency v. Public Entity Nat'l Co.-Midwest, +560 N.W.2d 20 (Iowa 1997). Acceptance is provided in unilateral contracts through performance.

Contracts also require consideration. Iowa cases in the handbook unilateral contract context have referred to continuing employment as providing the consideration for such a contract.

Several older Iowa cases addressing claims for "permanent" or "lifetime" employment contracts (such as contracts promising employment for life or until retirement) have stated that permanent/lifetime contracts "will be interpreted as indefinite and terminable at will in the absence of some consideration in addition to the services to be rendered." See Kabe's Restaurant, Ltd. v. Kinter, +538 N.W.2d 281 (Iowa 1995). However, the Iowa Supreme Court has stated that this "additional consideration" requirement for permanent employment contracts "is not truly a rule of consideration in the traditional sense, but rather an adjunct rule of interpretation" to assist in determining what the parties intended with respect to duration. See Wolfe v. Graether, +389 N.W.2d 643 (Iowa 1986); Cannon v. National By-Products, Inc., +422 N.W.2d 638 (Iowa 1988); see also Kunzman v. Enron Corp., +902 F. Supp. 882 (N.D. Iowa 1995).

Oral Contracts

Whether an oral representation can become a contractual obligation depends on the facts and circumstances of the statement, and employers should use care to ensure that it is clear that employment is at-will, of indefinite duration and can be terminated at any time.

The Iowa Supreme Court has rejected a claim that an oral contract was created by statements regarding job security made during the interview/hiring process where the statements expressed expectations that the applicant would enjoy long-term employment and were made to "sell" the company rather than to alter at-will status. See Thompson v. City of Des Moines, +564 N.W.2d 839 (Iowa 1997).

Likewise, the Iowa Supreme Court has rejected a negligent misrepresentation claim premised on pre-hire statements expressing an expectation that the applicant would enjoy long-term employment because the applicant and employer were dealing at arm's length, the relationship was "adversarial" (not advisory) and the statements were not made to guide the applicant with professional advice but rather to "sell" him on the company. See Fry v. Mount, +554 N.W.2d 263 (Iowa 1996).

An Iowa court also rejected an oral contract claim based upon alleged promises made by an employer during discussions with a current employee asking him to relocate. See Bowser v. PMX Indus., Inc., +545 N.W.2d 898 (Iowa Ct. App. 1996). While the employee alleged he was told his relocated employment would last at least five years, the court held the evidence failed to establish an oral contract because:

  • None of the employer's employees had an employment contract except for at-will employment, and the employee knew that he would not be given an employment contract.
  • The employment application signed by the plaintiff, after the alleged statement about five-year employment was made, indicated that employment was for no definite period and could be terminated at any time.
  • The employee knew he would not be given a contract and he testified that five-years was an "estimate," and thus the evidence was insufficient concerning the time frame of the contract.
  • The employee did not prove that there was an offer to pay him a specific salary for a certain period of time, and the evidence was otherwise insufficient to establish the other terms of the employment contract.

Promissory Estoppel

Under Iowa law, the at-will employment relationship does not bar a claim for promissory estoppel. However, claims for promissory estoppel have strict requirements, including a strict standard for determining what constitutes a "clear and definite" promise.

In the employment hiring context, promissory estoppel under Iowa law requires:

  • A clear and definite promise;
  • A clear understanding by the employer that the applicant was seeking an assurance that the applicant would rely upon and without which the applicant would not act;
  • The applicant acted in reasonable reliance on an employer's promise to substantial detriment; and
  • Enforcement of the promise is required to avoid injustice.

See Schoff v. Combined Ins. Co. of America, +604 N.W.2d 43 (Iowa 1999).

In determining whether there has a been a promise, the Iowa Supreme Court has made a firm distinction in the employment context between a representation and a promise and "will not imply a promise from representations made by an employer, but will require strict proof that the defendant promised to do or not to do a specific act, and did not simply state the employer's view or impression of something." Schoff, +604 N.W.2d 43. The Iowa Supreme Court emphasized that "If we do not make a firm and clear distinction between a promise and a representation, discharged employees could simply characterize negligent misrepresentations as promises and thereby avoid our rule that employees may not recover for negligent misrepresentations made by an employer or potential employer." Schoff v. Combined Ins. Co. of Am., +604 N.W.2d 43 ; see Fry v. Mount, +554 N.W.2d 263 (Iowa 1996).

Likewise, the standard to determine whether a promise was clear and definite is also demanding. The Iowa Supreme Court has stated:

  • A clear promise is easily understood and not ambiguous; and
  • A definite promise is explicit and has no tentativeness or doubt.

Courts have rejected promissory estoppel claims under Iowa law that were asserted on the basis of pre-hire statements concerning whether the applicant's prior criminal matters would affect employment, because the employers' specific statements in those cases were:

  • Representations reflecting their understanding regarding the applicant's hireability (not promises to forebear discharge);
  • Ambiguous; and
  • Did not clearly and definitely encompass a promise that the matters would not interfere with employment.

Maintain the At-Will Employment Relationship

It is a good practice for employers to have employees sign a statement containing a prominent disclaimer in which employees acknowledge their employment is at-will and that neither the employer's handbook, policies and practices nor any statement by the employer create any contractual rights, alter at-will employment status or constitute a promise. In addition, in order to counteract any potential claim by an employee concerning alleged oral promises, the statement should also indicate that the at-will employment status cannot be altered except, for example, by a corporate officer in writing. See French v. Foods, Inc., +495 N.W.2d 768 (Iowa 1993).

Although disclaimers are very important to reduce the risk of claims that a contract has been formed, such a disclaimer may not necessarily bar a promissory estoppel claim or a tort claim based on an alleged misrepresentation. For instance in Barske v. Rockwell Int'l Corp., +514 N.W.2d 917 (Iowa 1994), the court held that a non-contractual misrepresentation claim premised on a pre-hire representation that employment would continue for a specified duration was properly given to a jury notwithstanding an at-will disclaimer contained in the job application, and the jury could consider how the disclaimer affected the reliance requirement for a misrepresentation claim. However, the court in Mahony v. Universal Ped. Servs., Inc., +753 F. Supp. 2d 839 (S.D. Iowa 2010) dismissed a promissory estoppel claim that was based on an alleged promise in an employee handbook because the handbook disclaimed that it formed any promises, stating "no reasonable person would have relied on representations found in a handbook that are disclaimed in the very same handbook."

Restrictive Covenants

Noncompete Agreements

Reasonable restrictive covenants, or noncompetes, are generally enforceable in Iowa and may be necessary to protect an employer from unfair competition from employees and former employees. Continued employment generally is sufficient consideration for a noncompete agreement in Iowa.

Iowa courts ask three questions to determine whether a noncompete agreement is enforceable:

  • Is the restriction reasonably necessary for the protection of the employer's business?
  • Is it unreasonably restrictive of the employee's rights?
  • Is it prejudicial to the public interest?

See Lamp v. Am. Prosthetics, Inc., +379 N.W.2d 909 (Iowa 1986).

Courts in Iowa also look to balance the interests of the employer and employee. The "restriction placed on the employee must be no greater than necessary to protect the employer and may not create hardships on the employee out of proportion to the benefits the employer may be expected to gain." See Moore Bus. Forms, Inc. v. Wilson, +953 F. Supp. 1056 (N.D. Iowa 1996).

To determine reasonableness and to balance the interests of the employer and employee, the following factors are important:

  • The employee's proximity to the employer's customers;
  • The employee's access to specialized knowledge and information gained through employment and peculiar to the employer's business;
  • The nature of the business to be protected;
  • The nature of the occupation to be restrained;
  • The employee's opportunity to take some part of the employer's goodwill with its customers;
  • The reasonable expectation that some customers will follow the employee; and
  • General matters of basic fairness.

See Moore Bus. Forms, +953 F. Supp. 1056.

The temporal length of the restriction and the geographic parameters are touchstones for determining reasonableness. In Iowa, a typical duration for an enforceable noncompete is two to three years, and covenants lasting longer than five years have been deemed unenforceable. See Phone Connection, Inc. v. Harbst, +494 N.W.2d 445 (Iowa Ct. App. 1992). The reasonableness of the geographic restriction is dependent on the type of business and its customer base.

Employers should be aware that courts in Iowa may alter a restrictive covenant to make it reasonable and enforceable.

Nonsolicitation Agreements

With respect to nonsolicitation agreements, although they are still subject to reasonable time restrictions and other considerations, to the extent the nonsolicitation agreement only bars solicitation of former customers and is less restrictive than noncompete agreements that generally prohibit any competition, they are generally more likely to be enforced.

Nondisclosure Agreements

With respect to nondisclosure agreements, in Revere Transducers, Inc. v. Deere & Co., +595 N.W.2d 751 (Iowa 1999), the Iowa Supreme Court held that the test to determine the enforceability of a nondisclosure agreement is the same test used to analyze the enforceability of noncompete agreements. The court also held that a nondisclosure agreement that contains no geographical or time restrictions is not presumptively unenforceable "because the inquiry whether the nondisclosure agreement unreasonably restricts the employee's rights would address the breadth of the restrictions regarding disclosure."

Even in the absence of a nondisclosure agreement, Iowa's Uniform Trade Secrets Act and common law fiduciary duties of employees may provide a remedy to employers.

Trade Secrets

Employers that do not require employees to agree to restrictive covenants or noncompetes are still protected in the event an employee misappropriates proprietary information of the company. Iowa has adopted a version of the Uniform Trade Secrets Act and enforces protection of information, including, but not limited to, a formula, pattern, compilation, program, device, method, technique or process that both:

  • Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by a person able to obtain economic value from its disclosure or use; and
  • Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

+Iowa Code § 550.2(4).

The following categories of information may be protected as trade secrets, as long as the information is protected from disclosure to the public:

  • Pricing techniques, data and figures;
  • Marketing techniques;
  • The identity and requirements of customers;
  • Financial information;
  • Supply sources;
  • Confidential costs;
  • Manufacturing processes;
  • Composition of products; and
  • Expiration lists.

See Monona County Mut. Ins. Assoc. v. Hoffman Agency, Inc., +791 N.W.2d 711 (Iowa Ct. App. 2010).

The following factors should be considered to determine whether information deserves trade secret protection:

  • Is the information widely known outside the business?
  • Is the information widely known by employees and others involved in the business?
  • What measures have been taken to guard the information?
  • How valuable is the information to the business and its competitors?
  • How much money and effort was expended to develop the information?
  • How easily is the information acquired or duplicated by others?
  • What is the method for obtaining the information?

See Monona County Mut. Ins. Assoc., +791 N.W.2d 711.

Future Developments

There are no developments to report at this time. Continue to check XpertHR regularly for the latest information on this and other topics.

Additional Resources

Recruiting and Hiring > Terms of Employment

Employee Management > EEO - Discrimination

Employee Management > EEO - Discrimination: Iowa

Organizational Exit > Employer Liability for Discriminatory Terminations