In Lindsay vs. Cottingham & Butler Insurance Services, Inc., (Iowa Supreme Court, March 27, 2009), Lindsay had worked for C&B as an account executive from 1987 until 2001. During in his employment, C&B provided Lindsay with a deferred compensation plan that was “in consideration of (his past) and future services.” The plan provided for 120 months of deferred compensation, dependent upon Lindsay’s years of service. The plan also contained a ten (10) year non-compete agreement which provided in part that he would be available to advise the company after his retirement from active service and must represent the company well to clients and the community. It also stated that Lindsay was not to compete with the company during the retirement period in any manner in order to be eligible to receive deferred compensation benefits. Although the plan provided that C&B’s Board could decide to suspend or terminate payments under the plan, the Board’s decision would be final.
At the time Lindsay left C&B, he declined to take the deferred compensation payments immediately; he preferred to wait until he was 55 in order to avoid the early payment discount. During the “exit” meeting, C&B representatives explained that they expected Lindsay to comply with the non-compete provisions of the deferred compensation plan. Instead, after leaving C&B, Lindsay worked with another insurance sales agency and was advised by C&B that he could be in violation of the deferred compensation agreement. Later, Lindsay went to yet another benefits and insurance brokerage firm which was in direct competition with C&B. At that firm, Lindsay worked with two clients with whom he had contact with while he was with C&B.
The lower court found that Lindsay had violated the deferred compensation plan by soliciting and accepting C&B clients while with his new employer. Lindsay argued that the non-compete provisions that were contained in the plan were unconscionable and unenforceable under Iowa law because it does not contain reasonable limits as to time and area. Lindsay appealed to the Iowa Supreme Court. The Court found that ERISA covered the plan and, therefore, federal law rather than state law determines whether the plan’s non-compete forfeiture provisions can be enforced.
-Rebecca Dublinske
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