In the past few years, executive, legislative, and judicial branches in several jurisdictions have acted to prevent employers from using overly broad noncompete agreements.
The well-known general rule is that a covenant not to compete is only enforceable if its terms are reasonable and necessary to protect the legitimate business interests of the employer. See e.g., Medix Staffing Solutions, Inc. v. Dumrauf, No. 17C6648, 2018 WL 1859039 (N.D. Ill. April 17, 2018). Courts then often engage in an analysis of the business interests involved and the geographic and temporal scopes of such agreements. Despite the familiarity with these standards, the analysis of whether a non-compete agreement is enforceable has long been unpredictable due to the many vagaries of state law, the fact-intensive nature of a court’s review, and the proclivities of the judge you happen to draw. See e.g. Steven Kayman & Lauren Davis, A Call for Nationwide Consistency on Noncompetes (Law360 Employment, November 27, 2018).
Traditionally, covenants not to compete were designed to prevent unfair competition and were confined to corporate executives, persons with knowledge of trade secrets, sales persons and client-based professionals (e.g., physicians and accountants). However, non-compete arrangements have recently become much more common in many other types of employment, especially in the service industry, with their reach extending to chefs, yoga instructors, fast food employees, editorial employees, phlebotomists, student interns and a wide range of low income workers with no knowledge of trade secrets and no effective ability to entice a customer to leave the former employer.
Executive: Attorneys Generals Settle with WeWork, Jimmy John’s, Law360, EMSI and Reliance Star Payment Services, Inc.
The New York Attorney General’s office has been aggressive in pursuing and obtaining settlements restricting employers from using overbroad noncompete agreements. A prime example is a recent settlement with WeWork, a company that provides a network of shared spaces for rent and associated services to clients throughout the United States and internationally. The company used non-compete agreements with almost all of its 3,300 employees in the United States. The WeWork settlement agreement prevented employees—including janitors, baristas, and executive assistants—from working for competitors after leaving the company regardless of job duties, knowledge of confidential information, or compensation, and the agreement applied to all levels of employees. NY Attorney General Press Release (September 18, 2018); Yuki Noguchi, Under Pressure, WeWork Backs Down on Employee Noncompete Requirements, National Public Radio (September 18, 2018).
The respective attorneys general for New York and Illinois began separate but concurrent investigations into WeWork’s use of non-compete agreements. After the settlement, the non-compete agreements will only remain intact for 100 executive-level employees. For 1,400 U.S. employees, the agreement was fully released, and another 1,800 received significant modifications to their agreements, including reduced terms, smaller geographic areas, and a more narrowly-defined scope of competition. Supra Noguchi, Under Pressure, WeWork Backs Down on Employee Noncompete Requirements. The New York Attorney General has also reached settlements restricting the use of overbroad noncompete agreements with Jimmy John’s, Law360, EMSI, and Reliance Star Payment Services, Inc. See New York Attorney General Press Releases of September 18, 2018 and October 26, 2018.