Last week, the Office of the New York Attorney General (NYAG’s Office) reached a settlement with WeWork, a New York City-based company that provides shared “co-work” spaces nationwide and internationally – and, notably, is one of the largest office tenants in New York City – regarding its use of non-compete restrictions with its employees. Recently, the NYAG’s Office has investigated and reached settlements with several other employers on the subject of non-competes, including a sandwich chain, a legal news website and a national medical information services company.
The investigation of WeWork, spearheaded by the New York AG and in collaboration with the Illinois AG’s Office, revealed that WeWork required its employees at nearly all of its locations across the country to sign non-compete agreements as a condition of their employment. The AG’s Offices took the position that WeWork’s non-compete agreements were overbroad in that they prohibited employees – including baristas and janitors, irrespective of their employment position, compensation and knowledge of confidential information – from working for competitor entities in cities where WeWork operates, for a one-year period following their separation of employment with WeWork.
The settlement releases more than 1,400 WeWork rank-and-file employees nationwide (including 800 in New York) from their non-compete restrictions. Another 1,800 WeWork employees nationwide (including 1,400 in New York) will be bound by far-less-restrictive non-compete agreements. Specifically, the duration of their non-competes will drop from one year to six months, and the geographic restriction will drop from any location where WeWork operates to a mere 15-mile radius from only those WeWork locations performing the same type of work that the employee formerly performed. The scope of the post-employment restriction would also be limited to the specific types of business in which the employee formerly worked. The resolution requires WeWork to notify all current and former employees who left within the past year of changes to their non-compete restrictions. WeWork is also required to submit semiannual reports to the NYAG’s Office for two years regarding changes to its non-compete restrictions. In the wake of the settlement, the NYAG’s Office released a document entitled Frequently Asked Questions for Non-Compete Agreements in New York State, which provides guidance for employees who are presented with non-compete restrictions.
Today, non-compete agreements have become the norm for executives and in certain industries, such as the technology industry, where there may be a heightened need to protect intellectual property and trade secrets from unwanted disclosure to third parties. Due to the frequent use and misuse of non-compete restrictions, we are seeing a response at all levels of government. States, such as Massachusetts, are proposing and passing laws to regulate the use of non-compete agreements; courts are increasingly scrutinizing restrictive covenant provisions in employment agreements; and AGs’ Offices, including the New York and Illinois AGs’ Offices, have commenced investigations of employers over broad non-compete agreements. In New York, there is proposed legislation that would prohibit non-compete agreements for workers earning below $75,000 per year.
This settlement should serve as a reminder to employers, nationwide and irrespective of industry, to re-examine their restrictive covenant agreements with employees to ensure that they are no broader than necessary to protect the employer’s legitimate business interests, such as protecting trade secrets and confidential information or preventing employees from taking specialized skills they learned on the job to a competitor company.