Employment Non-Compete Clauses and Liquidated Damages in Iowa

Contracts & Licensing

If you have ever signed an employment agreement, or asked your employees to sign one, it probably had a covenant not to compete with the employer if the employee leaves the business. These clauses are usually called “non-competes.” They typically limit the time and the geographic area within which the former employee can perform the same kind of work and/or work in the same industry. But how enforceable are they? A recent Iowa Court of Appeals decision, Cedar Valley Medical Specialists, PC v. James Wright, M.D., shows both how these clauses are used and what the courts think of them.

Wright, a cardiothoracic surgeon, entered into an employment contract with Cedar Valley Medical Specialists, PC, in Black Hawk County, Iowa. In the contract, Wright agreed that if he left the employment he would not practice medicine within 35 miles of Black Hawk County for a period of two years after leaving. He also agreed that if he did not comply with the restrictions, he would pay as liquidated damages the greater of $100,000 or his last 6 months’ salary with the group.

Wright retired from the medical group and went to work for a local hospital the next day. The medical group sued to enforce the agreement and won in the district court. Wright appealed, and the Iowa Court of Appeals ruled on his case on October 9, 2019. 

The court began its analysis by stating the Iowa law on restrictive covenants, saying:

Because restrictive covenants involve the partial restraint of trade, we construe them against the party seeking enforcement and approve them with some reluctance. We apply a three-pronged test to determine whether an employment contract with a restrictive covenant is enforceable: (1) Is the restriction reasonably necessary for the protection of the employer’s business; (2) is it unreasonably restrictive of the employee’s rights; and (3) is it prejudicial to the public interest?

Cedar Valley Medical Specialists, PC v. James Wright, M.D.

As you can see, the courts do not automatically enforce these contractual provisions, but rather engage in a balancing of interests among the employer, the employee, and the public good. Moreover, the burden is on the employer to prove it is entitled to enforce the covenant.

As to the first prong, the court found the covenant was reasonably necessary to protect the employer. The market for Wright’s specialty was limited; Wright had confidential information about the medical group’s operations; and the group had supported, promoted, and invested heavily in Wright. When he left, the group lost the revenue he would have brought in.

The court next found that the restrictions were reasonable as to time and geographic area.

Wright argued that the public interest favored striking the clause. If he, the only cardiothoracic surgeon within 50 miles, was prohibited from practicing his specialty, there would be none. Lives hung in the balance. The court rejected this argument, noting that there were only three or four emergency cases annually and there were other providers close enough by. Besides, the former employer was not seeking an injunction (that is, it was not trying to prohibit Wright from practicing medicine); it was asking to enforce the liquidated damages provision to make up the losses it suffered when Wright went to work for a competitor. 

The second part of the analysis of this non-compete clause was the reasonableness of the liquidated damages provision. Liquidated damages are damages agreed to when a contract is made that will be paid if a party breaches the contract. They are enforceable if: 1) they were a reasonable estimate, at the time the contract was entered into, of the damages that will be suffered if the contract is breached; and 2) the amount of actual damage is difficult to determine. Given the investment the former employer made in Wright and the lost revenue it would likely suffer if Wright were to compete with them, the court found the clause to be reasonable and enforceable.

If you need assistance with an enforceable non-compete for your employees, feel free to contact us for assistance.

Pinterest for Employers

Pinterest for Business

I was recently interviewed for the Society for Human Resource Management article “Pinterest Might Facilitate Copyright Infringement.” Below for your viewing pleasure is the entire text of the email-based interview with Workplace Law Content Manager Allen Smith.

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What special copyright issues arise in using Pinterest and how should employees be trained to comply with copyright laws when they are pinning content on Pinterest in a work-related capacity?

Pinterest raises more or less the same copyright issues as any other website, but it has gotten more media attention than others. In general, no one should ever place any content on the web that he or she does not own or have a license (permission) to place on the web. Employees should be aware of what intellectual property their employer owns, any of which may be posted on the employer’s behalf (in compliance with any other laws and workplace policies, of course), and what intellectual property may be subject to licenses which limit the employer’s (and by extension the employee’s) right to post. Otherwise, content located on the web is generally off-limits; making material public does not abrogate any copyright rights. Exceptions include content that is in the public domain (there are several online databases of public domain works—in general, a work published prior to 1923 will be in the public domain); content that is explicitly licensed for pinning; content that falls under fair use exceptions to copyright; and content that is subject to a Creative Commons license (though be careful with that one, as work-related uses may not qualify for some Creative Commons licenses).

Employees should be trained to look for key phrases in website Terms of Use indicating that it is safe to use content on Pinterest (a handy shortcut: if a site owner who clearly owns or licenses the content has placed a “Pin It!” button on the site, pinning should be fine; Etsy is a good example). In addition, a Pinterest account holder that pins its own content has granted a license to Pinterest, so that the content can be re-pinned by other users. The tricky part can be determining whether content was pinned by the rights owner since Pinterest does not have a corollary to the Twitter Verified Account badge.

Could you provide examples of how employees might use Pinterest for work purposes?

I have seen some companies doing wonderful things with Pinterest, primarily retailers. Random House Books has an account and pins not only its own books (brilliant given that “Books Worth Reading” is one of the default pinboards), but also interesting book- and reading-related images. Home Depot has become very involved in the home decor suggestions boards and re-pins content in addition to posting its own proprietary photos, which of course gets people thinking about ways they could improve their homes using Home Depot products. Service professionals can use Pinterest as well; one of my favorite accounts belongs to a style consultant, Sasha Westin, who uses Pinterest to gather suggested wardrobes for people, such as “Men’s Relaxed Professional,” complete with links for purchasing each item.

If employees are using their personal Pinterest accounts to promote their employer, they should be aware of FTC blogger regulations, which require disclosing that relationship.

How are the copyright issues that arise when using Pinterest similar to copyright challenges employees face with other forms of social media that’s used in their work?

As noted, they are really very much the same. No one should post content on any site that he or she does not own or have a license to use. The difference between posting a link to an article on Facebook and posting it on Pinterest, though, is that on Facebook a thumbnail of any photo accompanying the article appears (which has been pretty well, but not definitively, established as fair use), but on Pinterest the full image appears and is uploaded to the Pinterest servers. Pinterest also has a more visual focus, which encourages people to post infringing material such as the work of photographers or painters.

Is pinning content owned by others any different from a legal standpoint from retweeting content on Twitter, and if so, how?

Yes. When someone posts something to Twitter, one of two things is happening: either it is original content, which that person has granted a license to Twitter to use (and that use includes retweeting by other users), or it is not original content. Content that is not original generally must be paraphrased or be a brief introduction to linked content. Linking does not infringe on copyright, and Twitter’s 140-character limit is short enough that it would be difficult to infringe any Twitter-external content. Pinterest has no such limitations.

Are many employees oblivious to the copyright concerns that may exist in their work-related use of Pinterest and, if so, what kind of training might employers provide?

I can’t speak to employees in particular, but much of the general population has developed an ethic about sharing that is not sensitive to the rights of copyright holders. This ethic extends to personal and professional use of social media, including Pinterest. Employers should ensure that their employees are aware that when it comes to copyright, creation, not possession, is 9/10ths of the law. Employees using Pinterest in a work-related capacity should always consider the source, whether the source owns the copyrighted material, and whether the source has given the employer a right to use the copyrighted material. For employers who may be cost-sensitive, the Copyright Office maintains a series of easy-to-understand Circulars, which explain much of what an average person needs to know about copyright. Circular 1 contains the fundamentals. The Copyright Office, however, does not give information about what to look for in a license.

There are also social media certifications becoming available for employees whose routine duties involve social media; the one I am familiar with, from the National Institute for Social Media, should be coming out this fall and will be accredited. (Disclosure: I am chair of the Industry Advisory Committee for NISM, so I wrote the portions of the exam dealing with legal questions. I do not benefit financially from my relationship with NISM.)

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