Recently, shared-office rental company WeWork reached a settlement with the attorney general (AG) of New York to end or limit WeWork’s use of non-compete agreements for nearly all of its employees in the U.S. WeWork is an industry leader in the co-working industry, providing shared workspaces for lease by month and office services to entrepreneurs, startups, and other companies.
WeWork is growing rapidly, with 287 locations internationally, 7,500 employees globally, and 3,300 employees in the U.S. Prior to the agreement with the New York AG, WeWork had its employees sign employment agreements containing non-compete clauses prohibiting workers from working for a competitor for 12 months after leaving WeWork. The non-compete agreements applied to all employees – including baristas, executive assistants and janitors – regardless of job duties, knowledge or access to trade secret or confidential information, or compensation.
Under the settlement, WeWork agreed to fully release over 1,400 U.S. employees from their non-compete agreements. For about 1,800 U.S. employees with managerial duties or specialized skills, WeWork agreed to revise their non-competes to reduce the restriction period from 12 to 6 months, to restrict the geographical area to a 15-mile radius, and to restrict the ban to the specific lines of business in which the employee worked. The non-compete agreements for about 100 executive level employees remained the same.
The settlement ends a two-year long investigation by the New York attorney general who took the position that WeWork’s non-competes imposed unreasonable restrictions on trade by going far beyond the intended limited uses of non-competes, such as to protect an employer’s trade secrets and confidential information or prevent employees from taking specialized skills gained on the job to a competitor. The Illinois attorney general also closed an investigation into WeWork’s non-competes as a result of the settlement.
This investigation and subsequent settlement adds to a growing trend of attorneys general investigating and pushing to end or limit the use of non-compete and no-poaching restrictions on lower-wage and non-executive employees. We recently discussed investigations launched by a group of state attorneys general into the use of no-poaching agreements by fast-food restaurants. That investigation resulted in a settlement with the attorney general of the State of Washington in which Burger King, Papa John’s, Denny’s, and five other restaurant chains agreed to eliminate the use of no-poaching agreements by their franchisees.
The abuse of non-competes and other restrictive covenants is becoming increasingly scrutinized as concerns over worker mobility and wage growth increase. As New York attorney general Barbara Underwood said, “too often, noncompete agreements are misused, especially when it comes to low-wage workers — limiting employees’ mobility and opportunity and preventing businesses from hiring the best person for the job.”
We will continue to monitor this trend and its impact on the enforcement of non-competes and other restrictive covenants, including in Georgia.