As part of the “Silicon Prairie”, the gig economy affects Iowa more than one may expect of a rural state. According to the Technology Association of Iowa, technology work in Iowa accounts for $10.7 billion and 8.8% of the state’s GDP. This may contribute to Iowa’s low 2.7% unemployment rate at a time when traditional employers are struggling to find workers. Not only does Iowa have a surprising number of tech start-up companies, as technology continues to revolutionize the agricultural, manufacturing, finance, insurance, and other more traditional workspaces, but the state has seen an increase in tech and tech-related jobs generally.
Recent recognitions for the state and/or its cities include the following examples:
Due to the prevalence in Iowa of start-up tech companies and tech-related work (an area that has historically trended as contractor-type work), the misclassification of employees as independent contractors is expected to become an increasing compliance concern in the state. Care should be taken to ensure that workers are not only properly classified as employees or independent contractors, but also that employees are properly classified as exempt or non-exempt under the Fair Labor Standards Act, taking into account all the necessary factors.
Iowa is no stranger to the “Me Too” movement, having seen a USD2.2 million jury verdict returned in favor of a female worker in Iowa’s statehouse in 2017. This highly publicized verdict was one of the highest awards to a single employee in Iowa’s history. Also in 2017, the State paid USD6.5 million to settle sex discrimination and retaliation claims by two female employees of the University of Iowa, after a jury returned a USD1.43 million verdict for the first plaintiff. Another Iowa jury awarded USD4.5 million to an employee in an age and disability discrimination/retaliation case in 2017, leading many employers to think twice before taking an employment case to trial in Iowa – at least in state court. Historically, federal district and appellate courts in the Eighth Circuit (where Iowa is located) have been relatively employer-friendly with regard to discrimination, harassment, and retaliation claims and hostile work environment claims.
As an offshoot of this apprehension, employers who enter into settlement agreements with employees routinely insist on strict confidentiality/non-disclosure provisions. Iowa has not passed any law prohibiting such provisions, as many other states’ legislatures have started trying to do. Additionally, in an effort to avoid having to try or settle such claims, more companies are focusing on training efforts, including discussion of civility and respect, and are engaging counsel to assist with investigations.
Unemployment rates are low in Iowa, and area employers are competing for the available labor force, driving up wages and benefits as a result of competition and decreasing the need for unions to negotiate such items. Iowa employee membership in unions is on the decline. According to data from the Bureau for Labor Statistics, in 2017, only 104,000 of Iowa’s 1,475,000 employees were union members (7%), and only 127,000 employees (8.6%) were represented by a union (ie, in a bargaining unit but not union members). (Note that Iowa is a “right to work” state, meaning employees in a unionized workplace cannot be required to pay union dues or join a union to obtain or keep a job.) These percentages represent about a 2% decrease from 2016, and about a 50% decrease from 1990.
There is no state equivalent of the NLRB for private-sector employers in Iowa. Iowa’s Public Employment Relations Board (PERB) adjudicates issues concerning public-sector employees covered under Iowa’s Public Employment Relations Act (PERA).
Iowa subscribes to the employment at-will doctrine, making it a favorable employment environment for global entities. Employees are traditionally hired for an indefinite duration and may continue employment until termination, which may occur at the hand of either the employer or the employee, for any reason not specifically prohibited by law. Iowa law presumes employment at-will unless the parties enter into a written agreement to the contrary. The employment at-will doctrine is particularly attractive for employers because it limits the claims that can be brought against them by former employees. For example, a former employee cannot sue an employer for breach of contract as a result of his or her termination unless the employee can demonstrate that a contract of employment was in place. The same holds true for wrongful termination lawsuits.
While Iowa courts presume that employment relationships are at-will, entities operating in this jurisdiction should still take appropriate steps to protect the presumption. Employee handbooks or personnel manuals are generally not construed as creating contracts of employment, though an Iowa employer would be well-served to include a disclaimer in its handbook to prevent the formation of an implied-in-fact contract. The same principle should be applied to offer letters. Similarly, Iowa employers are free to designate the initial period of employment as a “probationary period” and maintain the at-will nature of the employment relationship, though consideration should be given to reiterating the at-will nature of the relationship in employee communications and policy manuals.
When considering whether to hire an independent contractor versus an employee, entities should pay particular attention to the patchwork of Iowa and federal laws governing the independent contractor relationship. An independent contractor is generally a self-employed individual who performs work pursuant to a contract. The work is typically project-based, and the hiring entity has little control over the manner in which the work is performed. Iowa uses a common-law analysis based on agency principles to distinguish independent contractors from employees, but the overarching concern is the level of control the hiring entity exercises over the individual. Iowa Workforce Development (the agency that oversees workers’ compensation and unemployment administration, among other things) has a Worker Misclassification Unit dedicated to examining relationships to ensure the hiring entities are properly classifying their workers. Iowa employers are therefore best served to consult with competent counsel prior to selecting which type of relationship they will pursue for a given worker. With respect to the classification of employees as “exempt” or “non-exempt” from minimum wage (currently $7.25), Iowa follows the federal FLSA. Iowa does not have its own state overtime law, so the FLSA controls.
As in other jurisdictions, entities considering using staffing agencies should pay particular attention to joint-employment rules. Although the recent federal guidance on the topic has been rescinded, the common-law concept of joint-employment still exists. Thus, where an employee performs work that benefits two or more employers, a joint-employment relationship may be created, and joint and several liability for obligations such as satisfaction of overtime and minimum wage payments under the FLSA may exist. Therefore, entities entering into contracts with staffing agencies or entities operating two or more businesses within the state should consider implementing contractual controls to account for these obligations.
Iowa employers are generally free to designate employees as full-time, part-time, seasonal, or temporary. However, special attention should be given to the definitions contained in the employer’s benefit plans, to ensure harmony.
There is nothing particularly unique about the structure and formation of business entities under Iowa law. As in other jurisdictions, the wise employer will establish an entity such as a corporation or a limited liability company in order to shield personal assets from business debts. The “corporate veil” can be pierced in Iowa, so corporate formalities must be followed, and distinct identities must be maintained. In any event, as discussed elsewhere in this summary, many Iowa employment claims provide for the individual liability of supervisory employees who break the law, so personal liability may result regardless of the existence of a separate business entity.
Immigration issues are generally regulated by federal law, and Iowa does not subscribe to an E-verify mandate. According to the American Council on Immigration, about 5% of Iowa’s employees are immigrants (born outside the United States).
Whether and how an existing collective bargaining agreement binds an acquiring entity depends on the nature of the deal (eg, merger, asset purchase, stock purchase) and the text of the existing collective bargaining agreement. Accordingly, due diligence on union issues is essential.
Companies hiring in Iowa may wish to consider the following various limitations and legal issues impacting the pre-employment process.
Iowa law is relatively protective of prospective employees’ privacy. For example, the Iowa Genetic Testing Act (Iowa Code section 729.6) prohibits employers from asking, requiring, or administering a genetic test as a condition of employment or application for employment. It also prohibits employers from affecting the terms, conditions, or privileges of employment or applications for employment – or terminating the employment – of any person who obtains a genetic test. Iowa’s private-sector drug testing statute (Iowa Code Section 730.5) circumscribes employers’ ability to require pre-employment drug testing. Such tests may only be conducted pursuant to a written policy complying with the strictures of that law. Additionally, most private employers in Iowa are prohibited from requiring applicants to take a polygraph test.
In contrast, employers are permitted (and for some industries/professions, required) to conduct background checks. Iowa has not yet adopted so-called “ban the box” legislation expressly prohibiting questions about arrests and convictions (though exercising caution with respect to such information remains best practice). Criminal history in Iowa may be obtained from the Iowa Department of Public Safety, including arrest, conviction, disposition, correctional, adjudication, and custody information. Employers must pay the required fee, and may not pass that fee on to the candidate.
Similarly, Iowa has not yet adopted salary history ban legislation prohibiting employers from inquiring about an applicant’s past wages or compensation history during the pre-employment process. Nevertheless, setting compensation based solely on past compensation could give rise to a disparate impact discrimination claim, because past compensation for women and minorities may have been affected by bias (implicit or explicit) of past employers.
Employers should be cautious about asking questions aimed – directly or indirectly – at candidates’ membership in protected classes. The Iowa Civil Rights Act prohibits discrimination in employment because of race, creed, religion, national origin, race, color, sex, age (18 years and older), disability (construed similarly as under the Americans with Disabilities Act), sexual orientation, and gender identity. Employers should regularly train supervisors and other employees involved in the recruitment and hiring process on compliance matters. Iowa Workforce Development has published a “Successful Interviewing Guide”, which may be found online at https://www.iowaworkforcedevelopment.gov/successful-interviewing-guide.
One quirky law in Iowa is the Iowa Smokefree Air Act, which requires employers to notify employment candidates, upon application, of the applicable smoking prohibitions under said Act. Among other places, Iowa law prohibits smoking in all enclosed workspaces (including vehicles), and anywhere outdoor on an employer’s premises not expressly designated as a smoking location by the company.
While the foregoing is not intended to be exhaustive, it outlines a number of important hiring considerations.
To be enforceable, restrictive covenants must be reasonably necessary to protect the employer’s legitimate business interests, and must not be unreasonably restrictive of the employee’s rights, nor prejudicial to public interests. As the party seeking to enforce the non-compete, the employer bears the burden of proof in the enforcement of such agreements. In determining enforceability, courts consider the following:
Because the enforcement of restrictive covenants is an exercise of the court’s equitable powers, courts may also consider general “fairness” considerations, such as whether the employer involuntarily terminated the employee in breach of the employment contract (where a contract exists).
Iowa employers need not provide any consideration beyond continuing employment (even at-will employment) in exchange for an employee’s agreement to restrictive covenants.
If a court interpreting Iowa law concludes that a restrictive covenant is unreasonable, it may – but is not required to – modify the agreement to make it reasonable (ie, “blue pencil” it).
Protection of confidential information in Iowa can be accomplished by two means: contractual obligations and statutory obligations. Confidentiality agreements are routinely enforced in Iowa, as long as they are not unreasonable or overbroad.
Even in the absence of a non-disclosure agreement, employers may pursue injunctive relief under the Iowa Uniform Trade Secret Act (“IUTSA”) (Iowa Code chapter 550) against an employee in order to protect its trade secrets. IUTSA is a version of the model Uniform Trade Secret Act. As defined in Section 550.2(4), a trade secret is “information, including but not limited to a formula, pattern, compilation, program, device, method, technique, or process” that both derives actual or potential economic value from not being generally known or readily ascertainable by others who could benefit from its disclosure or use, and is the subject of reasonable efforts to maintain its secrecy. Essentially, any kind of business information may be a trade secret, so long as it meets the definition.
Courts consider various factors to determine if the material at issue constitutes a “trade secret,” including:
Depending on the circumstances, additional common-law claims may be asserted against a disloyal employee who steals confidential information, including common-law misappropriation of trade secrets, conversion, interference with business relationships, and tortious interference with prospective business relationships, as well as various claims arising under federal law.
The Iowa Civil Rights Act, Chapter 216 of the Iowa Code (the “ICRA”), prohibits discrimination in employment, including unlawful harassment and retaliation. The ICRA covers most Iowa employers with at least four employees. Individual supervisors may be sued in their individual capacity, and may be found individually liable for violations of the ICRA (unlike its federal counterparts). An unfair employment practice complaint under the ICRA may be filed with the Iowa Civil Rights Commission (the administrative enforcement agency) within 300 days of the alleged discriminatory or unfair practice. Complainants must exhaust administrative remedies before pursuing an ICRA action in court. Iowa courts often look to federal EEO case law for interpretive guidance when applying the ICRA, but are not bound to follow federal precedent.
The ICRA forbids discrimination in employment based on the following protected classifications: age (18 years and older), race, creed, religion, national origin, race, color, sex (including pregnancy), sexual orientation, gender identity, and disability. It is unlawful for employers to refuse to hire or to take other adverse employment action with respect to recruitment, hiring, promotion, training, discipline, discharge, or other terms, privileges, or conditions of employment on the basis of any legally protected classification.
All the classes protected from unlawful discrimination under the ICRA are protected from workplace harassment. Harassment is unwelcome conduct because of a person’s protected class status, and becomes unlawful in the following circumstances:
Unlawful harassment can occur between co-workers or between a supervisor and subordinate employee, or can come from customers, vendors, or other members of the public with whom an employee comes into contact because of the employment relationship.
Just as it protects certain protected statuses, the ICRA also protects certain activities. The ICRA expressly prohibits retaliation against a person because he or she obeys the provisions of the ICRA, has lawfully opposed a practice prohibited under the ICRA, or has filed a complaint, testified, or assisted in any proceeding under the ICRA. Section 216.11 of the ICRA also makes it unlawful for any person to intentionally aid, abet, compel, or coerce another person to engage in any of the practices declared unfair or discriminatory under the Act.
Per 2009 amendments, the ICRA (section 216.6A) declares it an unfair or discriminatory practice for an employer to pay lower wages to an employee in a protected group than are paid to other employees in the same establishment and under similar working conditions for equal work requiring equal skill, effort, and responsibility. The law also prohibits employers from coming into compliance with this provision by reducing the wage rate of any employee. For purposes of this section of the ICRA, an unfair or discriminatory practice is deemed to occur in the following instances:
The statute offers an affirmative defense if a pay differential results from a legitimate seniority system, merit system, system measuring earnings by quantity or quality of production, or other factor other than the age, race, creed, color, sex, sexual orientation, gender identity, national origin, religion, or disability of such employee.
The ICRA’s treatment of pregnancy is somewhat unique. As under the federal Pregnancy Discrimination Act, it is an unfair employment practice for an employer to have a formal or informal policy excluding persons from employment or application for employment because of pregnancy, or to terminate employment because of the employee’s pregnancy. The ICRA, however, goes further than federal law, in declaring that disabilities caused or contributed to by pregnancy, miscarriage, childbirth, or a legal abortion are treated as protected temporary disabilities, and if sufficient leave is not available under an employer’s other leave policies, an employee must be granted unpaid leave for any period of time she is disabled by pregnancy, childbirth, or related medical conditions, up to eight weeks. However, employees must give employers timely notice of the period of leave requested, and the employer must approve any change in the period requested before the change is effective. Additionally, an employer may require an employee’s disability resulting from pregnancy to be verified by medical certification stating that the employee is not able to reasonably perform the duties of employment.
Workplace safety in Iowa is governed by the federal Occupational Safety and Health Act (“OSHA”) and the Iowa Occupational Safety and Health Act (“IOSHA”) (Iowa Code chapter 88). IOSHA’s requirements mirror federal requirements:
The Iowa Workers’ Compensation Act (Iowa Code chapter 85) is designed to provide certain benefits (medical benefits, disability benefits, death benefits, etc) to employees who suffer an injury or illness arising out of and in the course of their employment. It is generally a no-fault system, but there are certain narrow exceptions (eg, willful injury or intoxication, in some cases). The trade-off for the no-fault nature of the system is the exclusivity rule – employees may only receive workers’ compensation benefits for work-related injuries and generally may not assert common-law claims against their employers, such as for negligence.
Iowa employers must carry workers’ compensation liability insurance, or become certified to self-insure. Failure to comply with the mandatory insurance law can result in criminal and civil penalties.
Employee handbooks or personnel manuals are not legally required in Iowa, but having them – or at least a set of certain essential policies – is a practical necessity. Having rules, expectations, and benefits set forth in writing helps to ensure consistent treatment among employees and avoid the need to make ad-hoc decisions, which can lead to discrimination claims. As stated earlier, it is important to state in employee handbooks that the document is not a contract of employment (ie, include a disclaimer), and that the employee is employed at will. It is also important to obtain a signed acknowledgment from each employee stating that he/she received the handbook, understands it, and agrees to comply with it. Such acknowledgments are particularly helpful in defending claims for unemployment benefits (when employees are discharged for misconduct), as well as in discrimination and wrongful termination actions. Iowa Workforce Development provides a helpful document, entitled Suggestions for Writing Employee Handbooks, which is available at https://www.iowaworkforcedevelopment.gov/sites/search.iowaworkforcedevelopment.gov/files/Suggestions%20for%20Writing%20Employee%20Handbooks_70-5022.pdf.
Iowa law does not require employers to provide any employee benefits, but almost all employers provide some array of employee benefits (eg, health insurance, paid time off, retirement plan, etc). Benefits such as paid time off are generally a matter of contract between the employer and employee. However, Iowa does have a statute (Iowa Code section 91A) that requires employers to treat certain promised benefits (eg, “Vacation, holiday, sick leave, and severance payments which are due an employee under an agreement with the employer or under a policy of the employer”) like wages, in that they must be paid out to the employee upon the termination of employment. Importantly, however, if an employer does not establish an agreement, policy, or practice of paying out PTO on the termination of employment, Iowa law does not require it to be paid. For more information, see https://www.iowadivisionoflabor.gov/wage-frequently-asked-questions.
Iowa has a healthcare continuation coverage statute (Iowa Code chapter 509B) that applies to employers with two to 19 employees (in contrast to COBRA’s 20-employee threshold). As under COBRA, eligible employees who have a qualifying event (eg, termination of employment) may opt, at their sole expense, to continue their health insurance coverage through their employer-sponsored group health plan for up to nine months.
As noted above, employment in Iowa is presumed to be at-will and, absent a contract to the contrary, either party may terminate the relationship at any time for any reason not prohibited by law. Employers often enter into written employment agreements for executives or other key employees. Such agreements typically provide for termination for Cause (in which case, the employee will only be entitled to compensation earned through the termination) or without Cause (in which case, the employee will receive severance pay, provided he or she executes a release of claims in favor of the company and/or complies with post-employment obligations such as covenants not to compete). Defining “Cause” is a matter of contract between the parties, but it will commonly include things such as willful failure to perform job duties, conviction of a felony or crime involving moral turpitude, material violation of company policy, breach of a contractual obligation to the company, etc. The Iowa Supreme Court has said: “‘Cause’ does not include ‘reasons which are arbitrary, unfair, or generated out of some petty vendetta'” (Kern v. Palmer Coll. of Chiropractic, 757 N.W.2d 651, 658 (Iowa 2008)). It is for the fact-finder to determine whether “Cause” existed, and the employer’s judgment in that regard is not entitled to any deference. Stated differently, the question is not the objective reasonableness of the employer’s belief that Cause existed; the question is whether Cause actually existed, in the judgment of the trier of fact.
Iowa has enacted a “mini-WARN” act, which, like the federal Worker Adjustment and Retraining Notification Act, requires employers to give advance notice to employees in the event of a plant closing or mass layoff. Whereas the federal WARN Act applies only to companies with 100 or more employees, the Iowa WARN Act applies to companies with 25 or more employees. Whereas the federal WARN Act requires 60 days’ advance notice, Iowa WARN requires 30 days’ advance notice, and specifically allows pay in lieu of notice. Iowa WARN defines plant closing/mass layoff as an event causing a job loss of six months or more for 25 or more employees (a much lower threshold than under the federal WARN Act).
Unlike the federal Age Discrimination in Employment Act (ADEA), Iowa does not have separate legal requirements for releases of employment-related claims. Rather, the release is governed by the general principles of contract law – eg, it cannot apply prospectively, it must be voluntary, etc.
Absent a collective bargaining agreement, employer-employee disputes are resolved through administrative complaints (eg, to the Iowa Civil Rights Commission, Iowa Division of Labor, etc), litigation in state court, litigation in federal court (where federal jurisdiction exists) or, less frequently, through arbitration.
Claims for breach of contract most frequently arise in the context of high-ranking/executive employees, or in the context of enforcing restrictive covenants. These claims are adjudicated in state court, unless diversity jurisdiction should exist allowing filing in/removal to federal court. Remedies are determined by reference to the contract (eg, damages, injunctive relief, attorney fees); in any event, damages must have been within the contemplation of the parties at the time the contract was made (ie, the rule of Hadley v. Baxendale).
Outside the aforementioned contexts, claims by other employees for breach of contract, promissory estoppel, quantum meruit or unjust enrichment are few and far between, because these have not been successful under Iowa Supreme Court precedent. As long as the employer has made clear that employment is at-will and not contractual for any period of time, claims based on employee handbooks have failed due to lack of mutual assent, and claims for promissory estoppel have failed because reliance is unjustified when an employer makes it clear that employment is to be at-will. Likewise, the Iowa Supreme Court has long held that there is no claim for breach of the implied covenant of good faith and fair dealing in the employment context (absent an employment agreement), nor is there any generalized claim for “wrongful termination”.
The Iowa Supreme Court has carved out a so-called “narrow exception” to the employment at-will doctrine, allowing a tort claim for wrongful discharge in violation of public policy. The elements of this claim are as follows:
Because wrongful discharge in violation of public policy is an intentional tort, the full array of damages is available, including compensatory damages (lost wages, emotional distress) and punitive damages.
As mentioned above, discrimination, harassment, and retaliation claims will lie under the Iowa Civil Rights Act. In addition, various statutes expressly prohibit retaliation and/or provide a private right of action against the employer (eg, the Iowa Wage Payment Collection Law and the private-sector drug-testing law). When the action is created by statute, the statute sets forth the available remedies, and these typically do not include punitive damages. Under the Iowa Civil Rights Act, remedies include equitable relief (hiring, reinstatement, or frontpay in lieu thereof; requiring the implementation of policies, training of employees, etc), “actual damages” (lost wages and benefits, emotional distress damages), attorney fees, and costs. Also available in a wage-discrimination case under the ICRA is either: “(a) An amount equal to two times the wage differential paid to another employee compared to the complainant for the period of time for which the complainant has been discriminated against. [or] (b) In instances of willful violation, an amount equal to three times the wage differential paid to another employee as compared to the complainant for the period of time for which the complainant has been discriminated against.” Under the Iowa Wage Payment Collection Law, remedies include not only the unpaid wages but also (in many cases) liquidated damages in an amount equal to the unpaid wages, as well as attorney fees and costs.
In the wage/hour arena, actions are typically pursued under the FLSA, because Iowa does not have its own overtime statute. In cases where an employer has violated the minimum wage statute (Iowa Code section 91D), the Iowa Wage Payment Collection Law (Iowa Code section 91A) is the vehicle for recovery, so liquidated damages, attorney fees, and costs are available to the successful plaintiff.
Because of the dual application of the FLSA and Iowa law in the case of minimum wage and overtime violations (eg, off-the-clock work cases, misclassified independent contractor cases), such matters are frequently adjudicated under a hybrid class/collective action in federal court. The FLSA provides for collective actions, where class members must “opt in” to participate in the litigation, whereas the state-law claim (the minimum wage claim) is subject to Rule 23 of the Civil Rules of Procedures, which makes all class members participants in the litigation unless they opt out. However, class/collective action waivers are enforceable under United States Supreme Court precedent, and this is no different in Iowa.
There is no information relevant to this section.
Employment cases in Iowa are frequently resolved in mediation. For federal cases, the federal magistrates in Iowa are particularly adept at resolving employment cases through court-sponsored settlement conferences. The Iowa Civil Rights Commission also offers free mediation to all parties involved in a case that is “screened in” for investigation (vs. administratively closed after screening). Beyond that, once employment cases in the state court system proceed to litigation, mediation/ADR is a matter of private agreement between the parties. For private employees not regulated by FINRA, arbitration is a less common dispute resolution mechanism, but it does occur when the employer is prepared for the initial cost outlay of arbitration (ie, filing fee, arbitrator’s expenses).
There is no Iowa statute that provides for collective actions (like the FLSA). However, Iowa Rules of Civil Procedure 1.261 through 1.279 provide for class actions, similar to Federal Rule of Civil Procedure 23.
Employment claims under Iowa law may result in relief such as backpay, frontpay, reinstatement, hiring or other equitable relief, emotional distress damages, liquidated or punitive damages, and attorney fees and costs. The relief available depends on the nature of the claim.
The Iowa Supreme Court recently confronted the issue of extraterritorial application of the Iowa Civil Rights Act, in Jahnke v. Deere & Company. Jahnke was employed by a John Deere in Iowa, but actually worked at a facility in China. After his employer repatriated him to the United States to another Iowa facility, Jahnke pursued claims of age discrimination, national origin discrimination, and sex discrimination under the ICRA.
The Iowa Supreme Court held that the ICRA does not apply extraterritorially, and an ICRA plaintiff “must show a discrete discriminatory employment action that took place within the scope of employment in Iowa.” “[T]he location of the employee at the time of the alleged civil rights violation is an important, but not necessarily determinative, factor.” Rather, the “crux” or “focus” of the employment falling within Iowa’s borders is what triggers the application of the ICRA.