This essay previously appeared in the Prairie Progressive, Cedar Rapids Gazette, and Bleeding Heartland.
If you have never had to learn or appreciate what a non-competition agreement, or non-compete is, consider yourself lucky. These documents hold workers hostage to the whims of employers.
The idea that a non-compete is an “agreement” overstates things. Commonly, when a person gets a job, a non-compete is just another document the employer requires the employee to sign. The employer may or may not explain what it is. Whatever explanation an HR representative provides is not binding on the company.
Alternatively, at any point an employer may draft a non-compete and present it to the employee, saying, “we need you to sign this if you want to keep working here.” Iowa courts say non-compete agreements made under threat of loss of employment are perfectly valid—after all, the employee did get to keep her job and not lose her ability to feed her family, pay her mortgage, and so on. Ironically, the same Iowa courts also say non-competes are banned for lawyers.
So what do these agreements say?
One I recently reviewed says the employee agrees he will not be “employed by, consulting for, advising, or rendering services to any person, group, or entity engaged in employer’s business in the territory.”
What is the employer’s business? In this case it was the “design, manufacture, marketing and sale” of agricultural equipment and any other business operations employer may venture into.
What is the territory? The United States of America.
How long does it last? This one was 18 months.
The agreement says if you work for this company, and decide to leave, you are not allowed to work for any company having anything to do with agricultural equipment in the United States for a year and a half.
What if I want to shift from working in marketing to take a sales job somewhere else? It doesn’t matter. What if I have worked in agricultural equipment for 30 years and it’s the only business I know? Doesn’t matter. What if they fire me? Surely they can’t stop me from getting a job after they have fired me. No, they think they can, and they might try.
It gets worse. The non-compete usually says something like “employee understands and agrees the nature of damages which would be caused by employee’s violation of this agreement are such that employer shall be entitled to a temporary injunction without the necessity of showing any actual damages and without the necessity of posting any bond… If employee breaches the agreement, employee will be responsible for employer’s reasonable attorney fees.”
Reasonable attorney fees would be a funny term if the reality were not so awful. In other words, you agree that if you even say out loud you are thinking about getting another job we don’t approve of, we have a right to sue you to get a court order preventing you from taking the job. In terms of evidence we’d put before the court? Well, we’d enter this document you signed where you agreed it is reasonable for us to do this to you. And here is the bill for our tall-building lawyers.
Of course, those lawyers wrote the document you signed. Drafting a non-compete is essentially an exercise in figuring out how big of jerks the lawyer and employer can be, but if a judge ever sees the document, they will enforce it. Iowa courts do recognize some limits in the draconian terms imposed in a non-compete. However, a judge almost never sees one; it almost never gets that far.
The employer already has lawyers. They can afford to pay $350/hour or more for their lawyers. What can you afford? Also remember, you already agreed to pay for their lawyers if they win. Most people are simply bullied into submission.
Surely there are brave individuals who move on to another job even if the old employer thinks it violates a non-compete? Yes, but what often happens in that situation is the old employer sues both the worker who left and their new employer. The new employer initially is shocked and horrified the old employer would do this to you. They are sympathetic. But they don’t want to be dragged into this. We’re sorry, you’re fired.
In this year’s State of the Union address, President Joe Biden spoke about a non-compete restricting a fast-food employee from going across town to get a job at a competitor for more money. You might think that is an extreme example; it is not.
In Iowa, there are janitorial businesses that require janitors to sign non-competes, attempt to enforce them, and justify their actions based on the worker having been provided access to customer lists and trade secrets. Yes, that’s right: janitorial trade secrets. In the letter I sent in response, I suggested to my counterpart that if his clients are asking him to threaten lawsuits against custodians for working as custodians, he may want to reevaluate the scope of his legal practice.
The president also stated that 30 million Americans are subject to non-competes. That may be true, but many, if not most, are either unaware of them or do not think they are real. Again, it is often just presented as another form you have to sign to work here. In terms of enforceability, I have had dozens of people start a sentence to me with “Well, I know Iowa is a right to work state, so…” Most people do not appreciate the real predicament a non-compete can put them in until they are already in it.
Non-competes are a form of indentured servitude from which the 13th Amendment has not saved us. At the macro level there is no question non-competes hold back wages and cause tremendous financial anxiety and wreck plans.
At the whim of an employer, a non-compete causes some unlucky people to live life differently from how they want to live life. Non-competes are designed and used to prevent regular people from pursuing their own happiness.
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