Restriction Friction: Illinois and New York Attorneys General Finalize Settlement with WeWork That Limits Noncompetition Provisions

By Leah Farmer and Mike Warner - Franczek Radelet P.C.

September 28, 2018

On September 18, 2018, Illinois Attorney General Lisa Madigan and New York Attorney General Barbara Underwood reached a settlement with WeWork, a shared offices company that provides services around the world. Illinois and New York authorities had challenged WeWork’s widespread use of non-compete agreements for the vast majority of its employees, including low wage and non-skilled worked. The settlement with WeWork will impact approximately 3,300 employees across the US and end ongoing investigations in Illinois and New York.

In separate press releases, the Attorneys General touted the settlement as removing “career obstacles for current and former employees” at WeWork and serving “as an example for businesses … to end the use of these overly broad non-competes.” Those press releases can be found here (AG Madigan) and here (AG Underwood). For its part, WeWork’s representatives said that the company welcomed the input of the attorneys general and had been in the process of revamping the agreements on its own when the investigations began.

The settlement results in different outcomes for the various categories of employees at WeWork.

Category 1: Entry Level/Lower Wage Workers. For almost 1,400 employees in this category, the non-competes will be eliminated entirely. Employees in this category include lower income workers, like cleaners, baristas, mail associates, executive assistants, and janitors, some of whom were making as little as $15 an hour.

Category 2: Middle Tier / Skilled Workers. For approximately 1,800 employees in this category, WeWork is revising the restrictions and making adjustments that reduce the impact of the non-compete provisions. For example, the definition of what businesses are deemed competitive with WeWork was narrowed, the restricted period was cut in half from 1 year to 6 months, and the relevant geographical restrictions were decreased from the more-sweeping term of “region” to a clearly delineated 15-mile radius.

Category 3: Senior Management / Executives. For the approximately 100 senior executive employees across the US, the terms of the settlement agreement are not expected to have a large impact on these more traditional non-compete agreements.

The settlement marks a continued trend in Illinois and other states state to clamp down on companies that require low-wage workers to sign non-compete agreements. In the fall of 2017, Attorney General Madigan filed a lawsuit against Check Into Cash of Illinois, LLC, for “imposing highly restrictive non-compete agreements on low-wage customer service employees at its 33 locations throughout Illinois.” This followed a negotiated settlement between Madigan’s office and sandwich company, Jimmy John’s, in December of 2016.

These settlements reinforce existing state-wide protections and laws in Illinois. The Illinois Freedom to Work Act, which became effective in January of 2017, prohibits the use of non-competes for employees earning minimum wage or less than $13.00 an hour. Additionally, even for positions where non-competes are allowed, courts in Illinois and in most states still require that non-compete agreements:

         1. are no greater than necessary to protect the legitimate business interests of an employer; and,
         2. include restrictions that are reasonable in duration, geographic area, and scope.

Employers should ensure that the restrictions in their non-compete agreements are not overly-broad.