WeWork Settles With New York, Drops Broad Employee Non-Compete Clauses

September 18, 2018, 10:46 PM UTC

The shared-office rental company WeWork agreed to drop a blanket and broad non-compete agreement it required of its employees in a settlement with New York’s attorney general today. The settlement affects WeWork’s 3,300 or so non-executive, U.S. employees, and closes an investigation in Illinois.

A non-compete agreement lets an employer file an injunction keeping a former worker from starting a new job within terms specified, such as a named competitor or any company in the industry, and within a certain distance. The threat of a court filing against even middle-tier wage earners often deters them from taking such jobs, even if courts often decline to enforce the agreement or its terms aren’t legal in the state in which it’s operative.

Under the settlement, the non-compete will be entirely eliminated for WeWork’s more than 1,400 employees. Some of these positions are custodial and some workers made as little as $15 an hour. For about 1,800 workers with managerial duties or specialized skills, a revised noncompete reduces the exclusion from 12 to 6 months, the geographical area from “region” to within a 15-mile radius, and specifies lines of business that are considered competitive.

About 100 executives will continue to have more typical non-compete arrangements in place.

A WeWork spokesperson told Fortune that the company was in the process of revamping its employee processes, and said it worked with the attorneys general of New York and Illinois during the investigation. The spokesperson said, “We are pleased to confirm that we now have updated documents developed collaboratively with these two Attorneys General that are responsive to WeWork’s growth.”

This adds to a growing trend by attorneys general to push for an end to both non-compete and no-poaching agreements for lower-wage workers, and to reduce the restrictions for other, non-executive employees. No-poaching deals prevent companies from making job offers to employees of other companies in a pact.

A Brookings Institution study found that 20% of workers with a high school education or less had a non-compete covering their current job, while 25% of all workers have one in their current or previous job.

Companies justify blanket non-compete and no-poaching agreements as necessary with tight labor markets, even for entry-level workers, in many parts of the country. These contracts suppress competition, which can reduce wages and worker mobility at a time of general wage stagnation for hourly workers.

Last week, Washington State’s attorney general, Bob Ferguson, settled with Burger King, Papa John’s, Denny’s, and five other fast-food chains to eliminate no-poaching agreements for all their U.S. locations. That comes on top of national settlements with 15 other chains.

Together, 67,000 locations and millions of workers are affected. Other chains, including Domino’s and Baskin-Robbins, remain under investigation, and Ferguson has said he will continue company by company and industry by industry.

With today’s settlement with WeWork, New York Attorney General Barbara Underwood said in a statement that “too often non-compete agreements are misused, especially when it comes to low-wage workers—limiting employees’ mobility and opportunity and preventing businesses from hiring the best person for the job.” About 2,300 of WeWork’s 3,300 employees work in New York.

The settlement stems from New York’s regulations over non-compete agreements, which requires such contracts limit terms to trade secrets and confidential information. They can also prevent an employee who learns specialized skills in one job from applying them at another company immediately upon leaving the position.

Other states, including California, ban such agreements entirely, and have laws in place to solely to allow the protection of proprietary information. California’s law states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”