Part 4 - Noncompete Agreements

Your authors discuss covenants (another word for contracts) not to compete on Pages 297-299 of your text. These are also known as non-compete agreements or restrictive covenants.

Iowa law states an employment related non-compete agreement is legal if (1) it is necessary to protect the financial or economic interests of the employer; (2) is reasonable in terms of time and distance and (3) does not violate public policy. Of course each of these three requirements is a question of fact (i.e., what is a reasonable time or distance to restrict a person's employment?).

6. Mary Anne is a licensed hair stylist. Seven (7) years ago she rented a chair in a salon owned by Kut Kut Hair Salon. At the time Mary Anne signed the agreement to rent space in Kut Kut Salon, she signed a non-compete agreement that stated if she left Kut Kut, she would not work as a hair stylist either as an employee or an independent contractor (or have her own salon) for a period of two years after leaving Kut Kut Hair Salon. For clarification, the non-compete agreement stated Mary Ann would not compete within a 50-mile radius of Kut Kut Hair Salon for 2 years AFTER leaving Kut Kut.

Upon leaving Kut Kut, Mary Anne immediately opened up her own hair salon about a 1/2 mile away from Kut Kut. Nearly all of her former customers have followed her to her new location.

Kut Kut wants to get an injunction to prohibit Mary Anne from keeping her new hair salon open. If you were the judge, how would you rule in this case and what would be the basis of your legal reasoning?

Note: For this answer it is more important you explain how and why you reached your conclusion than the bottom line "yes" or "no" answer. These agreements are really open to interpretation and are very fact-based or situational based cases. Keep in mind that often the real issue is not whether the agreement is legally necessary or appropriate but, rather, the time and distance involved. Often judges will reform or "re-write" the terms of the time and distance to be more reasonable.