Over the last several years, HR managers have struggled with recruitment and retention, but few industries have had as much difficulty in obtaining adequate staff as healthcare. Recognizing these issues, during the 2022 session, the Iowa legislature session made changes to Iowa Code Chapter 135Q, providing that healthcare staffing agencies who contract with “travelers,” were prohibited from entering into noncompete agreements with nurses, certified nurse aids (CNAs), med aids and similar temporary employees that might be placed with various healthcare entities, including hospitals and long-term care. Travelers are staff that are typically treated as independent contractors by the agency, and they work for the hospital or other healthcare entity pursuant to a contract with the agency.

The statutory change further required the Department of Health and Human Services (DHS) to develop specific requirements for healthcare staffing agencies and that the staffing agencies comply with DHS directives. However, this limitation did not apply to physicians or certain midlevel providers.

Iowa Non-Compete Agreements Statutory Changes

In the just finalized 2023 session, the Iowa legislature took another step to address what it believes to be inappropriate utilization of non-competes, specifically amending Iowa Code Chapter 147.16, by adding a new section 147.164. 

The new section, which takes “immediate effect” because of the severity of the perceived issue, stipulates that an employer “shall not enter into an agreement with a licensed mental health professional” that limits the location where the licensee may practice, “prohibits the licensee from contacting for professional services a person previously treated by the licensee, or imposes a time restriction on the practice of the licensee.”  The changes go further, voiding any preexisting agreements that would otherwise not conform with the requirements of the new law. 

Who is a mental health professional is defined both in this section and Iowa Code 228.1 and include an “individual that holds at least a master’s degree in a mental health field, including but not limited to, psychology, counseling and guidance, nursing, and social work, or the individual is a physician and surgeon or an osteopathic physician and surgeon.”  The person must also hold a current Iowa license in the field and have “at least two years of post-degree clinical experience, supervised by another mental health professional, in assessing mental health needs…”

Section 147.164 further adds to this definition “Individuals who are completing a supervisory requirement under a temporary license” and “Licensed master’s social workers with a current and active supervision plan on file with the Board of Social Work.” 

Note that this statutory change is limited to employers of mental health professionals and would not, on first reading, appear to impact independent contractors. However, a number of unreported Iowa court cases have shown that the courts are currently skeptical of non-competes in the medical area, particularly in mental health, often citing the state’s mental health crisis, particularly in rural areas, as a defining factor. Some lower courts have found that such agreements may violate public policy given this provider shortage.

Iowa’s actions are in line with much of what is seen nationally (check out the article “Severance Agreements – Federal Implications”). The FTC is looking to eliminate non-competes except in extremely limited circumstances, such as the sale of a business where the person is subject to the noncompete is a 20 percent or more owner of that business.  While this has generated a considerable number of national discussions, states across the country have been taking actions to limit various forms of non-competes, such as non-competes for people who are nonexempt, earn under certain levels, or like in Iowa, in the healthcare field.  

What’s next?

Of some concern is how to craft agreements for employees with access to federally protected documentation either under HIPAA/HITECH or FERPA and to ensure those obligations are met, given that the statute says there cannot be a limitation prohibiting “the licensee from contacting for professional services a person previously treated by the licensee.”

There may also be concerns with the data protection statutes as well as trade secret concerns. This is an area that will need to be further explored, potentially in litigation, as there can be a significant difference in practice from sharing contact information regarding a specific patient list versus providing substantive documentation or an item that would otherwise be protected by HIPAA.  This is a developing area to watch.

 As of today, May 15, 2023, Iowa Code Chapter 147.164 is an enrolled bill and sits on the governor’s desk awaiting her signature. Regardless, if you use employment contracts, non-competes, non-disparagements, or similar agreements, given the complexity and rapid changes in this area of law, you should monitor all of your agreements going forward to avoid issues and speak with an attorney.