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The Attorney General for the State of New York ("NY
AG") recently announced a settlement with WeWork Companies, Inc. that
will revamp WeWork's use of employee non-compete agreements.
The announcement comes amid wide-ranging legal challenges to
various labor practices employed by the shared-office space
company, one of New York's largest private office tenants.
Why were WeWork's non-compete agreements
unenforceable?
Non-compete agreements are meant to protect legitimate interests
of employers. In general, New York law allows for enforcement of
non-compete agreements in employment contracts. For example, common
scenarios in which non-compete agreements are likely to be deemed
enforceable are to protect an employer's trade secrets and to
prevent employees that developed specialized skills while working
for an employer from taking those skills to a competitor. However,
there are exceptions that are intended to limit the restrictive
nature of such agreements.
The NY AG began an investigation into WeWork's employment
practices after receiving a tip that WeWork required all employees
to sign employment agreements that contained non-compete
provisions. WeWork's practice was determined to be
indiscriminate, impermissibly requiring every employee, from the
most senior executive to the janitorial staff, to agree to the
non-compete restriction as a condition of employment. Because
WeWork's non-compete agreements were more restrictive than
required to protect its legitimate business interests, the NY AG
was able to procure a non-financial settlement agreement from
WeWork in which the company will entirely revamp its use of
non-compete provisions. Such changes include:
Shortening the non-compete period
from 1 year to 6 months;
Narrowing the geographic restriction
to a 15-mile radius from those WeWork locations engaged in the
business line in which the employee worked, in contrast to the
former restrictive location of any geographic area in which WeWork
operated; and
Narrowing the scope of competition
and limiting the restriction to specific lines of business in which
the employee worked while with WeWork.
In addition to the nearly 1,800 WeWork employees whose
employment agreements will be revised, the settlement with the NY
AG will also require that WeWork release some 1,400 employees from
the terms of their existing non-compete agreements entirely.
How to Properly Employ Non-Compete Agreements
When narrowly-tailored or reserved strictly for key personnel or
others that have access to valuable trade secrets or confidential
company information, companies can effectively use non-compete
agreements to protect their interests. However, as the WeWork
settlement demonstrates, widespread use of over-broad agreements
carries with it the very real risk of drawing the scrutiny of
regulatory authorities. As a result, it is imperative that
employers seek the advice of knowledgeable counsel to ensure that
non-compete agreements currently in use, or those that are being
contemplated, are properly drafted and enforceable.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Watch – The New Massachusetts Noncompete Law: What You Need To Know (Video)
