Opinion ID: 1989929
Heading Depth: 1
Heading Rank: 2

Heading: Enforceability of employment agreement.

Text: We first address Deere's contention that the district court erred in overruling Deere's motion for judgment notwithstanding the verdict concerning Deere's position that Revere's employment agreements with Delfino and Eckart were not enforceable and thus cannot be the basis for Revere's claim for tortious interference with a contract. When considering a motion for judgment notwithstanding the verdict on appeal, we view the evidence as the trial court did in ruling on the motion, that is, in the light most favorable to the party against whom the motion was directed. Faught v. Budlong, 540 N.W.2d 33, 35 (Iowa 1995). Iowa Rule of Civil Procedure 243(b) provides: If the movant was entitled to a directed verdict at the close of all the evidence, and moved therefor, and the jury did not return such verdict, the court may then either grant a new trial or enter judgment as though it had directed a verdict for the movant. The purpose of rule 243(b) is to afford the trial court an opportunity to correct its error in failing to sustain a motion for directed verdict where the movant was entitled to a directed verdict at the close of all evidence. Meeker v. City of Clinton, 259 N.W.2d 822, 827 (Iowa 1977). A motion for judgment notwithstanding the verdict should be denied if there is substantial evidence to support the claim. Faught, 540 N.W.2d at 35. Conversely, absent such evidence, judgment notwithstanding the verdict may be sustained. Id. Evidence is substantial when a reasonable mind would accept it as adequate to reach a conclusion. Johnson v. Dodgen, 451 N.W.2d 168, 171 (Iowa 1990). A. Language of the agreement. At the time they were hired by Revere, Eckart and Delfino each signed an agreement concerning disclosure of confidential information and inventions and/or discoveries and assignment of such inventions and/or discoveries, hereinafter referred to as the Revere agreement or agreement. The Revere agreement included the following provisions: (1) During the period of my employment I will disclose promptly and in writing to the head of the department or the division in which I am employed, or to such other person as the Company may designate, all inventions or discoveries which I may make, whether alone or with others, and whether during normal business hours or otherwise, and I will not disclose such inventions or discoveries to others, except as required by my employer, without prior written consent of the Company. (2) For a period of one year following the termination of my employment for any reason, I will not disclose as hereinbefore provided, all inventions and discoveries made by me which relate to: (1) methods, processes, or apparatus concerned with the production of any character of goods or materials used or sold by the Company, or (2) in respect to any character of goods or materials sold or used by the Company. (3) I hereby assign all of my right, title, and interest in and to such inventions and discoveries to the Company, and agree that I will, when requested at any time during my employment or thereafter execute specific assignments of any such inventions or discoveries to the Company or its nominee.... . . . . (5) I acknowledge that technical information other than that generally published and available to the public and other confidential information regarding the Company's business of which I may obtain knowledge in the course of and by virtue of my employment by the Company constitute valuable and confidential assets of the Company's business and that unauthorized disclosure thereof would be detrimental to the Company. I therefore agree that I will not disclose to others at any time during my employment or thereafter any confidential information, knowledge or data belonging to the Company, without first obtaining the Company's written consent thereto, except as such disclosure may be required by my service to the Company or by law. (Emphasis added.) On appeal, Deere contends that the Revere agreement is not enforceable because the language is overly broad and so open-ended as to include inventions and discoveries that are totally unrelated to Revere's business or its employees. Deere thus argues that because the Revere agreement is unenforceable, it cannot be the basis for a claim for tortious interference with a contract. Before examining whether the Revere agreement is enforceable, we deem it helpful to clarify the applicable standards concerning the enforceability of employment agreements containing nondisclosure-confidentiality or assignment provisions. We point out that the Revere agreement only addresses Delfino and Eckart's duties concerning disclosure or nondisclosure of confidential information and inventions and/or discoveries, and assignment of rights thereto, made by them during their employment with Revere; the agreement does not contain any noncompete provisions. B. Applicable law. At this point in the analysis, we are only concerned with whether the terms of Revere's agreement with Delfino and Eckart are reasonable. This inquiry is different from whether Delfino and Eckart breached the agreement, which will be discussed later. We have apparently never addressed the enforceability of an employment agreement containing a nondisclosure-confidentiality provision. We have, however, established certain rules concerning how to determine the enforceability of a noncompete agreement. See Lemmon v. Hendrickson, 559 N.W.2d 278, 282 (Iowa 1997) (employment agreement contained nondisclosure provision but validity of provision was not discussed); Lamp v. American Prosthetics, Inc., 379 N.W.2d 909, 910 (Iowa 1986); Iowa Glass Depot, Inc., v. Jindrich, 338 N.W.2d 376, 381 (Iowa 1983). We believe that the rules concerning the enforceability of noncompete agreements, as restrictive covenants, may be helpful concerning the enforceability of Revere's agreement with Delfino and Eckart and we therefore briefly review those rules. We have established the following three-pronged test to be applied in determining whether an employment contract containing 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? Lamp, 379 N.W.2d at 910. We have stated that [c]ovenants not to compete are unreasonably restrictive unless they are tightly limited as to both time and area. Lemmon, 559 N.W.2d at 282. Factors we consider in determining the enforceability of a noncompete agreement include the employee's close proximity to customers, the nature of the business, accessibility to information peculiar to the employer's business, and the nature of the occupation which is restrained. Jindrich, 338 N.W.2d at 382. An employee cannot be precluded from exercising the skill and general knowledge [the employee] has acquired or increased through experience or even instruction while in the employment. Id. at 383. Nondisclosure-confidentiality agreements enjoy more favorable treatment in the law than do noncompete agreements. See Terry Morehead Dworkin & Elletta Sangrey Callahan, Buying Silence, 36 Am. Bus.L.J. 151, 156-57 n. 30 (1998) [hereinafter Dworkin & Callahan]. This is because noncompete agreements are viewed as restraints of trade which limit an employee's freedom of movement among employment opportunities, while nondisclosure agreements seek to restrict disclosure of information, not employment opportunities. See id. The distinction is based on the idea that [o]nce a secret is disclosed, knowledge of the information cannot normally be confined to a particular area. Restatement (Third) of Unfair Competition § 41 cmt. d. (1995). Thus, imposition of geographic or durational limitations would defeat the entire purpose of restricting disclosure, since confidentiality knows no temporal or geographical boundaries. 2 Rudolf Callmann, The Law of Unfair Competition, Trademarks & Monopolies § 14.04, at 222-23 (Supp.1998) [hereinafter Callmann]. Thus, nondisclosure agreements lacking in geographic or time limitations have been held to be enforceable. See Dworkin & Callahan, at 156-57 n. 30. Some states, however, either because of statutory law or public policy, require some form of geographic or time limitations in order for a nondisclosure agreement to be enforceable. See Callmann, § 14.04, at 225-26 n. 19.52 (Supp.1998) (noting that even after Illinois and Georgia enacted statutes stating that contractual duties regarding secrecy of trade secrets shall not be deemed void or unenforceable solely for lack of durational or geographical requirements, courts in those states still held nondisclosure agreements invalid for lack of such restrictions). Additionally, some states consider nondisclosure-confidentiality agreements to be a restraint of trade and such agreements are therefore regulated by state statutes governing contracts in restraint of trade. [1] Employment agreements requiring an employee to assign to the employer rights to inventions designed or conceived during the period of employment have been upheld. See Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 542 A.2d 879, 886 (1988); Callmann, § 14.27, at 95 (1996) (agreements to assign all inventions and improvements in employer's field, patentable or unpatentable, which are developed by employee during employment belong to employer and such agreements are not invalid or unenforceable as an unreasonable restraint of trade); 27 Am.Jur.2d Employment Relationship § 233, at 735 (1996). We have said that In the absence of special agreement to the contrary, an invention and a patent secured for it belong to the inventor, even though the invention was made during the period of his employment, and the invention relates to the matter in which the inventor was employed. Bandag, Inc. v. Morenings, 259 Iowa 998, 1002, 146 N.W.2d 916, 918 (1966) (emphasis added) (quoted source omitted) (concluding that plaintiff-employer was not entitled to right and title to patentable formulas developed by employee during employment where employer had no agreement requiring employees to assign inventive ideas to employer). The determining factor of whether assignment-of-rights-agreements are enforceable seems to be one of reasonableness. See Ingersoll-Rand, 542 A.2d at 886 (Courts . . . will not enforce invention assignment contracts that unreasonably obligate an employee in each and every instance to transfer the ownership of the employee's invention to the employer.). C. Application of law to facts. Upon consideration of the principles discussed above, we conclude that the following test should be applied in determining whether a nondisclosure-confidential or invention assignment agreement is enforceable: (1) Is the restriction prohibiting disclosure reasonably necessary for the protection of the employer's business; (2) is the restriction unreasonably restrictive of the employee's rights; and (3) is the restriction prejudicial to the public interest? This test is obviously the same as that used to determine the enforceability of a noncompete agreement. We further conclude, however, that the absence of restrictions concerning time or geographic location do not render a nondisclosure-confidentiality, agreement presumptively unenforceable. This is because the inquiry whether the nondisclosure agreement unreasonably restricts the employee's rights would address the breadth of the restrictions regarding disclosure. Having articulated the proper standard, our next task is to apply it. The Revere agreement imposed basically three types of restrictions on Delfino and Eckart concerning disclosure of Revere proprietary information. First, the agreement required Delfino and Eckart to disclose to Revere any inventions and/or discoveries made by them during the course of their employment and also required them to assign their rights to any such inventions or discoveries to Revere. Second, the agreement precluded Delfino and Eckart from disclosing inventions and/or discoveries related to methods, processes or apparatus concerned with the production of any character of goods or materials used or sold by the Company. Third, the agreement precluded Delfino and Eckart from disclosing any confidential information, knowledge or data belonging to the Company. Upon our review, we conclude that the restrictions in the agreement concerning disclosure of, and assignment of rights to, inventions and/or discoveries and confidential information, knowledge or data are reasonably necessary to protect Revere's business interests. We believe an employer has the right to preclude its employees from disclosing such information. The language in paragraph five of the agreement regarding technical information other than that generally published and available to the public contemplates that an employee is only precluded from disclosing information that would not generally be known by the public. We thus conclude that the restrictions concerning disclosure are sufficiently narrow in scope such that they do not interfere with Delfino and Eckart's ability to use skills and general knowledge they acquired through employment with Revere in future employment. We further conclude that the invention assignment provision is reasonable and enforceable. Nor do we find any evidence in the record showing that enforcement of the restrictions is prejudicial to the public interest. The question of what information would constitute an invention or discovery or may be classified as confidential information, knowledge or data is more related to the inquiry regarding whether Delfino and Eckart breached the agreement and will be discussed later. We thus conclude that Revere's agreement with Delfino and Eckart concerning disclosure of Revere's business information and assignment of inventions and discoveries is enforceable. The district court therefore properly overruled Deere's motion for judgment notwithstanding the verdict concerning this issue.