In a turn of events that should surprise no one, the bro-ed out start-up WeWork has caught heat for abusing employee non-compete agreements. That’s right. While holding itself as new wave, disruptive, and collaborative, WeWork has simultaneously required every single one of its 7,500 employees to sign an agreement containing a non-compete provision. This includes executive assistants, baristas and even janitors.
That’s right. So basically, this: “We work bros! Have some cold brew and play some ping pong bros! How’s my man bun look? Everybody is talking about the awesome corporate and workplace culture we’re building bros. Beer at 1pm in the lobby— awesome! We’re so new wave and progressive bros. But janitor bro, we need you to sign this non-compete if you want to WeWork with us. It’s just protocol bros.”
I have been talking and writing about non-compete abuse for the past seven years. My bottom line: The vast majority of non-compete agreements in existence today are illegal restraints of trade. Non-compete agreements were supposed to be the exception to the rule. Now 25% or more of the American workforce is subject to a non-compete. That’s absurd. Non-compete agreements are only enforceable when they are absolutely necessary to protect a legitimate business interest. Protection against ordinary, fair competition is not a legitimate business interest. The company-movant-plaintiff is supposed to face a heavy burden in establishing the existence of a legitimate business interest. But far too often, courts accept boilerplate allegations and rubber stamp preliminary injunctions. The explosion of non-compete agreements and non-compete enforcement can be primarily attributable to three market actors:
- Management-side corporate lawyers who push non-compete agreements and non-compete litigation because it makes them tons of money.
- Companies that bought into that non-compete push and now use non-compete agreements for talent retention, to restrict employee mobility, and to suppress wages.
- Judges who refuse to view non-compete agreements through an antitrust framework and, instead, insist upon treating them as pure breach of contract matters. This is legally incorrect. Beyond that, let’s be blunt: It is judicial activism.
I’ve been in the New York Times, the Wall Street Journal, PBS New Hour and many more. I’ve talked to federal regulators. In the past week alone, I spoke to a reporter from the Center for Public Integrity about low wage non-compete cases (they won the Pulitzer — look it up) and gave a keynote speech on non-compete abuse at the National Employment Lawyers Association annual conference. After years beating this drum, it looks like people are finally paying attention. And you know who is really paying attention right now: State attorneys general.
In the case of WeWork, it was the New York Attorney General, Barbara Underwood who threatened to crack down on the company for non-compete abuse. Illinois followed suit and opened an investigation into WeWork’s non-compete abuse. Like many bullies, WeWork quickly wet its pants and backed down when faced with the prospect of a legitimate fight against a serious adversary (e.g. a major state AG). It’s like Mike Tyson said: Everybody has a plan until they get punched in the face.
Consider the following: As a condition of its settlement with New York, WeWork has agreed to eliminate non-compete agreements for thousands of employees and all but 100 executive, or, “Leadership Level” employees. Let’s unpack that.
First, the upshot of this: By waiving its non-compete agreement for literally thousands of employees, WeWork is implicitly recognizing that its non-compete agreement was unnecessary and illegal. WeWork effectively is admitting that it has been engaged in non-compete abuse for years.
Second, I’ve got news for WeWork and everybody else: The 100 remaining “executive” level non-compete agreements at WeWork are not necessarily enforceable. Get this straight: Just because somebody is an executive or high-ranking employee does not render a non-compete agreement automatically enforceable. It still requires the company to prove a legitimate business interest. In New York, that generally involves trade secrets. It’s not a given that these 100 executives actually had access to any trade secrets, or, that WeWork even has any trade secrets. Just wait. Several of these “Leadership Level” employees are going to make a move and end up in litigation. And inevitably, one of these people will call my office. I’m looking forward to it.
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. He litigates complex non-compete, trade secret and unfair competition cases. For more information, please contact his office at 954-332-2380.