The Wall Street Journal, by Eliot Brown, reported that WeWork previously required most employees, including baristas and receptionists, to sign agreements barring them from working at similar businesses for a year after leaving WeWork.
The WSJ further reported that as part of the settlement,
WeWork agreed to release 800 rank-and-file employees in New York and an additional 600 employees nationwide from their noncompetes. A further 1,800 employees nationwide will be given less-restrictive terms on their agreements.
On 9/17/2018, we reported about the FTC and certain Democratic lawmakers calling for significant restrictions over using non-compete restrictions in employment agreements. See FTC Considers Restricting Noncompete Agreements. Those calls to limit employers forcing employees to enter into non-compete agreements go too far, including for the reasons we highlighted in our earlier post.
However, employers like WeWorks that blatantly misuse non-compete restrictions amplify the reasons underlying calls for reform. WeWorks is not alone in its misuse of non-compete restrictions: Jimmy John’s (Jimmy John’s Sued (Again) Over its Noncompete Restrictions) or Law360, Four Take-Aways from an Employer’s Misuse of Overly Broad Noncompete Agreements.
In one of the more egregious misuse cases we’ve handled, the owners of Day Break Salon sued a former stylist claiming a breach of a non-compete agreement. Before beginning her employment with DayBreak, the stylist had paid for her training (over $20,000) and was responsible for building her client base.`
Without considering the questionable circumstances surrounding the end of the employment relationship, at the time Day Break sued, the stylist was pregnant, working from home and a couple of days at another salon until she went on maternity leave in a few months. While the case was eventually dismissed – with no injunction awarded – the legal fees on both sided dwarfed the relief sought.
Will there be limits on the enforcement of non-compete restrictions?
In sum, non-competes have an important and legitimate place in your company’s operations toolbox. But non-compete abuse has become rampant. If employers don’t carefully reconsider how such restrictions are used, the enforcement pendulum may swing so far towards disfavoring non-compete restrictions that there will be no place for using them, legitimate or otherwise.
For more information about drafting, negotiating, or litigation over the enforcement of non-compete agreements, contact non-compete attorney Jason Shinn. Since 2001, he’s worked with both companies and individuals to address legal issues involving post-employment restrictions like non-solicitation and non-compete restrictions.