The office share company WeWork Cos. reached a settlement with attorneys general of New York and Illinois over requiring most employees to sign over-broad noncompete agreements.
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.