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good afternoon thank you for registering for today's webinar today's webinar will focus on to employment topics important to banks first I will discuss how you can create an enforceable non-compete agreement specifically I'm going to give you the top 10 ways to create an enforceable non-compete agreement second I will review new diversity standards impacting banks and what sets your bank should take to comply with these standards if at any time you have a question please do not hesitate to ask you can type in your question in the chat box located on your screen also if you'd like a copy of my PowerPoint you can always send me an email my email address is on the first slide that you should see in front of you today to get started we're gonna talk about creating enforceable non-compete agreements banks like many employers rely on employees to develop proprietary processes and special relationships in order to develop their business those employees can come into contact with trade secrets and proprietary information that is extremely valuable to the bank and not otherwise publicly available they can also come into contact with customers in such a way as to develop a personal hold on the goodwill of the bank so how does a bank protect its goodwill and confidential information in the event an employee leaves the natural answer is a non-compete agreement if the employee leaves the bank he or she cannot work at a competing bank for a designated period of time the non-compete period enables the bank to train new employees or transfer customer loyalty to other employees from competition from the separated employee in addition in the chance that there's a breach of the non-compete an enforceable non-compete agreement allows the bank to stop or enjoin the former employee from engaging in the prohibited conduct during the pendency of the lawsuit it also allows the employer to seek damages such as lost profits so this sounds simple right well what I'm about to tell you is the answer to that question is not always during employment it is typical to prohibit an employee from competing against the bank however holding the employee to the same standard after the after he or she leaves the bank is another story and that's why it is critical that you create an enforceable non-compete agreements with some of your employees so the first item that you need to consider when putting together a non-compete agreement is the timing and the consideration you're going to give to the employee in exchange for signing the non-compete ideally you would want to give the employee the non-compete agreement at the beginning of their employment or with the initial offer of employment typically it can be included in as a term of an employment agreement with respect to consideration in Iowa the actual offer of employment is considered consideration in addition continued employment is considered sufficient consideration however if you have an independent contract continued employment or a continued relationship would not be considered sufficient consideration therefore if you didn't offer a non-compete to an independent contractor at the beginning of the relationship you would need to provide them with some additional considerations such as a raise or a new bonus in order to get them to sign a confident or a non-compete agreement the second item you need to consider is that the non-compete agreement must protect a legitimate bank interest an Iowa legitimate bank interests include goodwill including the goodwill of customers special training peculiar knowledge trade secrets and or confidential information with respect to this employers such as banks must establish that they are not seeking the gut non-compete agreement as a matter of routine so for example you can't ask for a non-compete from every single employee in your organization regardless of whether it is needed to protect a legitimate business interest a perfect example of this would be offering a non-compete agreement to a receptionist who may or may not have any contact with or connection to trade secrets or confidential information in the same respect you need to make sure that it is seeking to protect something that there's some relationship to the employees activity so ask yourself does the employee have access to trade secrets and or confidential information does the employee have direct access and a good relationship with customers in addition employers cannot impose non-compete requirements on employees for purely punitive or anti-competitive reasons the next item you need to consider is whether the non-compete is reasonably necessary to protect the bank's legitimate business interests in Iowa courts apply a three-part balancing test to determine whether a non-compete agreement is enforceable now this three-part balancing test is laid out there on the slide its first the first prong is the terms cannot be wider than what is reasonably necessary to protect former employ the former employers business that cannot impose an undue hardship on the former employee and it cannot be prejudicial to the public interest in this webinar I'm going to focus for the most part on the first prong touched briefly on the second phone I'm not going to go into too much detail did the third prong because it does not come up as often as the first in the second prong do one thing to keep in mind with respect to establishing reasonableness is that it is always the burden of the employer to establish reasonableness the employee will not have that burden so just with respect to the fourth item I'm going to get deeper into the reasonableness so how do you determine whether your non-compete is reasonably necessary to protect legitimate interests of the bank well the courts are going to look at a number of factors including where the bank's clients are located the nature of the employees job duties how reliant the bank is upon the particular employee to develop and/or preserve business relationships with customers the nature of the trade secret or confidential information how long it would take to transfer customer loyalty to different employees and how long it would would take to train the employees relationship because these and other factors will vary from bank to bank in industry to industry there is no blanket accepted time or Geographic limit on non-competes but with that said when deciding on the scope and the duration of non-compete which I'll discuss more detail later on most jobs would not justify a nationwide non-compete or a non-compete in excess of a year or two at least not in Iowa moving to the fifth item that you need to consider and this is related to the geographic restriction so what area do you want to restrict your employee from competing in Iowa courts generally find Geographic restrictions of twenty to forty forty miles to be enforceable unlimited geographic restrictions are unenforceable as well as nationwide restrictions which I mentioned before again the validity of a geographic restriction depends on the nature of the bank's business the g-got geography in which the employee actually worked the location of customers and whether the restrictions would cause an undue hardship on the employee now just as an example of this let's say you have a loan officer who works for a bank in southeast Iowa and has customers and relationships with these customers in Lee County des Moines County and Louisa County in that case the court would likely uphold a three County geographic restriction even though it covers more than the 40 miles that I mention previously and that's because that is where the employees customers are located again a statewide geographic restriction would be just would be okay if your customers were located throughout the state of Iowa the sixth item you want to consider is whether you want to use a customer specific restriction and lieu of a geographic restrictions Geographic restriction that's because in Iowa a courts will uphold customer specific restrictions and this is the type of restriction that restricts the employee from working with specific companies or clients with whom the employee directly does business with during their employment you can do this in one of two ways you can attach a specific list of customers to the non-compete agreement or you can be more vague and simply say any and all customers that the employee came in contact with during their employment and did business with or something like that the seventh consideration you need to make is how long you want the employee to be restricted from competing against the bank in Iowa of course will generally uphold a two-year restriction greater restrictions have been upheld however it's challenging to show that these are reasonably necessary to protect and the employers legitimate interests and then as I said before an unlimited duration is unenforceable unenforceable like I said earlier courts will look at the reasonableness factors to determine whether that the temporal restriction is as reasonable courts will also look at the geographic restriction the temporal restriction together and focus on whether there's a balance so for example if the geographic restriction is extremely narrow let's say ten miles but the duration is three years the court may uphold that restriction because there's a good balance between the geographic restriction and the temporal restriction by the same token if the geographic restriction is broad let's say it's statewide but the duration is short say for six months that may be up okay because there's a good balance between those two restrictions moving on to the eighth consideration a bank needs to make when creating a non-compete agreement and that is whether it has executed non-competes with any other employees so in Iowa courts will look at whether the bank has executed less restrictive non competes with other employees and this is especially true if you have employees who work in the exact same position as the employee that you're trying to seek enforcement of the non-compete against now so let's say for example if you have a loan officer Bob Smith and he has a two year post termination non-compete but a loan officer Jane Smith only has a six-month non-compete it would be difficult for you to justify how Bob's non-compete is reasonable to protect the legitimate business interest when you are okay with Jane only having a six-month non-compete so it's important that you stay consistent with your employees of course if one employee works in a different type of position or as significantly different Duke job duties you may be able to justify a difference there the ninth item you need to focus on and this goes back to the second prong of Iowa's balancing test is whether the non-compete agreement imposes an undue hardship on the former employee to determine whether there's an undue hardship the courts are going to look at those factors that we just examined the temporal and geographic limitations as well as the nature of the employees jet occupation but they're also going to look at the basic fairness of the non-compete for instance can the employee make a living and support his or her family with the non-compete in place in addition did the employee actually have enough customers to justify a non-compete one important item to remember when drafting a non-compete is that let's say you you draft a non-compete that is technically unenforceable because for whatever reason you your temporal restriction is too strict or even your geographic limitation is too strict in Iowa courts will modify or partially enforce a non-compete agreement that is unenforceable as originally originally drafted and this is a good thing so if you end up in court with a non-compete agreement that has a nationwide geographic restriction and a time limitation of three years the court will say well that's unreasonable but we will modify this so that it's a two-year restriction and only applies to this particular County now this doesn't mean you should just kind of draft in a non-compete in whatever way you want to you want to make sure it's enforceable going into court rather than having the court dictate what it finds to be the best situation for your your case that's the next number 10 and this isn't really how to create and enforceable non-compete but I wanted to make you aware that if you do have a non-compete agreement with employee you might as well have the whole package and that would include an on solicitation provision as well as a confidentiality provision with respect to the non-solicitation provision the court is going to apply the same test for enforceability as Atwoods non-competes with one exception and that is to the geographic considerations for a non solicitation provision you have to limit it to the clients or customers with whom the employee had contact you can't just make it to cover any and all customers of the bank it's also important important to know that you can prohibit both direct and indirect solicitation of employees and customers and non-solicitation provisions are particularly enforceable where the employee was the face of the bank with respect to confidentiality provision this would be contained in a non-disclosure clause and again it has the same test of impossibility as non-competes do in Iowa except for the temporal and geographic considerations importantly non-disclosure clauses can be for an indefinite time and do not need to have a geographic restriction this means if you have a loan officer who's working for you in North West Iowa and he's privy to trade secrets and confidential information this loan officer can't go to California and use your trade secrets and confidential information in order to compete against the bank or to do anything in his future employment so this is particularly important it's also important to note that if you do not have a non-disclosure clause and agreement you would still be protected by the common law in Iowa which prohibits employees from disclosing proprietary information you'd also be protected from the Iowa uniform trade secrets Act which prohibits employees from disclosing trade secrets that's that's all I have on creating an enforceable non-compete agreement I did want to touch briefly on the impact of hiring an employee with a non-compete agreement already in place so let's say he's he or she is coming from another Bank in Iowa or even out of state you need to make sure you ask all of your employees especially the higher level ones who are in have contact with your trade secrets whether they have a non-compete in place prior to them joining your bank you also need to see the agreement and see exactly what it says even have legal counsel review it so you know you're protected and not going to be violating that because if the employee violates their own non-compete agreement with another entity the bet your bank could also be liable for that breach I would also advise you to take everything one step further and had the employee agree in writing that he's not in breach of his his current non-compete agreement and have him I didn't and agree to indemnify the bank should the other entity file suit against the bank that's that's all I have on non-compete agreements I was going to move on to our next topic of diversity standards does anyone have any questions over non-competes at this time seeing no questions I'll go ahead and move on to the diversity standards but if at any time you have a question you can put it in the chat box or else you can email me after the webinar and I can I'd be happy to help you out so as you may know in 2010 Congress enacted the dodd-frank act to remedy the perceived failures of government regulators and to improve accountability and transparency in the US financial system among the mandates included in dodd-frank is a provision intended to address the diversity policies and practices practices of financial entities such as banks just by way of background the lack of employment diversity in the financial services sector has been well documented according to an April 2013 report of the US Government Accountability Office women represent approximately 30 to 36 percent of senior management positions at Financial at financial service in financial services sector with re pect to minorities the percentage is even lower they represent approximately 11 to 17 percent of senior management positions in the financial services sector so to address the lack of diversity in the financial sector services sector proposed diversity standards were issued more than a year ago per student pursuant to dodd-frank these standards are not yet in effect however it is likely they will be adopted in the new near future they were supposed to be adopted by the end of 2014 but that has been pushed back so I assume eight that at the latest they would be adopted by the end of 2015 just to give you some background section 342 of the dodd-frank act is what we're discussing here and this this particular section established the offices of minority and women inclusion I'm going to refer to that as OMW I at several financial agencies including the SEC the Consumer Financial Protection Bureau and the FDIC also you're going to see exactly what has been mandated for each director of these agencies on that earth or the office I'm not going to read that to you you can read it on the slide but just to kind of put it in plain English what does this actually mean well the directors have been charged with three main items and the first is to develop diversity standards for their own agency's workforce the second is to increase participation of minority and pheenoh female owned businesses in the agency's programs and contracts and third and this is the thing we're going to concentrate on today is assessing the diversity standards and practices of financial entities such as banks which are regulated by the what are the agencies that are covered by the the Act so the proposed standards focus on transparency and awareness of diversity practices within the agencies and entities they regulate such as banks which I'm going to discuss here those those the four areas that they are highlighting just to point out they they don't prescribe any quotas or mandate specific actions or impose specific penalties which is good news to banks more importantly the aim the agencies will not use the examination or supervision process in connection with these proposed standards and lastly the proposed standards take into consideration and an entity size and other characteristics for example total assets number of employees geographic location and community characteristics which is good for banks in Iowa especially small town banks which might not have am i a very high minority population or even the high high female population so the four areas that the joint proposed standards highlight or listed on your screen in front of you the first and I'm going to take these each individually the first is organizational commitment to diversity and inclusion second is workforce profile employment practices third is procurement and business practices specifically concentrating on supplier diversity in the forest as practices to promote transparency of organizational diversity and inclusion so for the first one organizational commitment to diversity and inclusion these the proposed standards say that financial entities such as banks should have a diversity and inclusion policy approved and supported by senior management and its board they should also have senior level officials educated to resources to oversee and direct the diversity efforts and they need to make sure they're taking proactive steps to promote a diverse pool candidates for senior leadership and board positions the next item is workforce profile and employment practices now with respect to this the three proposed standards state that the entity should have policies and practices that create diverse applicant pools from both internal and external opportunity opportunities for instance they would like to see outreach to minority and female organizations they'd like to see outreach to educational institutions that attract minorities and females and they also would like to see banks participate in conferences and workshops and other events that attract minorities and women with respect to this this area they also want the bank to hold management accountable for diversity and inclusion efforts and they want to make sure that the bank is using some sort of tool to measure on their workforce diversity and inclusion efforts such as applicant tracking recruitment and hiring for you for those of you who already have to file an annual EEO one report as is required by title seven of the Civil Rights Act or even entities that prepare annual affirmative action plans this would be a good way to track your work your workforce diversity and inclusion efforts and would take care of this particular prong of this area if you're not sure if you are covered and required to file either an EEO one report or a an affirmative action plan you can send me an email after the webinar and I can but you know whether you are required to do that then the third area that the joint proposed standards focus on is procurement and business practices specific to supplier diversity now these this is essentially what you're doing with respect to employees you need to be doing the same with respect to supplier so you need to have a supplier diversity policy that provides a fair opportunity for minority-owned and women-owned businesses to compete in procurement of business goods and services now this includes all types of contracts including contracts for the issuance of guarantee of any sort of debt again the entity also some have some sort of method to evaluate and assess its supplier diversity and it needs to promote a diverse supplier pool by doing outreach reaching out to educational institutions or participating in conferences workshops and other events that would would attract minority-owned and women-owned businesses lastly and I don't have this listed here on the slide but the proposed standards also say that the bank or the financial entity should publish opportunities to procure goods and services for for that bank the next item are the last item that the proposed standards focus on is practices to promote transparency of organizational diversity and include inclusion and this encourages antis entities to annual annually publish via the website or newspaper the following its diversity and inclusion strategic plan its commitment to diversity and inclusion and its progress towards achieving diversity and illusion in the workforce and procurement activities it also encourages financial entities to publish their demographic profiles of their workforce in suppliers so with all of these areas that the joint standards focus on they also propose an approach to how a bank such as yourself can assess whether it's it's complying with diversity standards so the first item ace they suggest is to do a self-assessment utilizing the proposed standards to conduct a quantitative and qualitative evaluation of the diversity and inclusion policies and practices which I laid out previously they also encourage voluntary disclosure to the appropriate agency whether that's the SEC or the FDIC of the self-assessment and other information that entity Dean's relevant the agencies have stated that they will monitor the information submitted over time for use as a resource and carrying out their diversity and inclusion responsibilities they also encourage the entity to display the information on its public website and in its annual reports and in other materials regarding its efforts to comply with these proposed standards as an opportunity for more public awareness and understanding of its diversity policies and practices practices the agencies have stated that they may periodically review information on regulated entities public websites to monitor diversity and inclusion practices so what what do you really have to take away from this well as I said before the the proposed standards are just proposed at this time they they are not in effect but there's two things I mean it's good that you're aware which and then the second thing is you need to be proactive so to be proactive I would suggest that you review your current diversity policies and practices hopefully all of you have some sort of EEO policy already in place but I'd encourage you to take a look at that policy and maybe expand on it to cover these sorts of the standards articulated here as well as to define the type of diversity the bank intends to encourage and this is pretty important because the standards do not define diversity so they're leaving that up to the banks for now and to also be proactive you should create or even you know start the discussion about what diversity objectives your bank would like to promote relative to its own business goals I think at this point since the standards are only in proposed form if you don't want to do anything concrete you can at least get the discussion started again there's no there's no quotas there's no specific actions and there's no penalties in the proposed standards so they're putting this on the banks and other financial entities to improve diversity policies and practices that's that's all I have for you today I hope you've enjoyed the webinar if you have any questions concerning non-compete agreements or the proposed standards under the dodd-frank act I'd be happy to answer them my contact information is located on this last slide I'd also be happy to send you my powerpoint shoot me an email and I'd be happy to send it to you on any questions for now seeing no questions I will go ahead and sign off but again you can always give me a call or contact me via email if you have any questions regarding the topics we've covered here or have any other employment related issues thank you again for attending and I hope you all have a great day thanks