Under Pressure, WeWork Backs Down On Employee Noncompete Requirements

Sep 18, 2018
Originally published on September 19, 2018 2:38 pm

The attorney general of New York has reached an agreement with WeWork to eliminate or modify noncompete clauses from most of its employment contracts, which restricted workers' ability to find new jobs.

Noncompete agreements generally have been standard for executives and in high-tech, where companies are trying to protect intellectual property or trade secrets from being transferred to rivals.

But regulators are increasingly concerned such legal restrictions are being applied to jobs far down the ladder — even in fast food and retail. Economists also worry that such clauses could be limiting wage growth by restricting workers' mobility.

"Workers should be able to take a new job without living in fear of a lawsuit from their former employer," said New York Attorney General Barbara Underwood. "Yet too often, noncompete 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."

In July, under pressure from the Washington state attorney general, seven fast-food chains agreed to eliminate similar language that restricted workers from getting jobs within the same franchise. Other state attorneys general say they are investigating other chains in the industry.

In WeWork's case, the Illinois attorney general had also started investigating the company's noncompete clause; it closed its investigation with this agreement.

WeWork pioneered the office rental subindustry known as co-working, where users lease shared workspace by the month. WeWork has grown to be the industry leader in co-work, with 287 locations internationally.

WeWork employs 7,500 people globally and 3,300 in the U.S. — including janitors, baristas and executive assistants — all of whom previously had to sign employment agreements in the hiring process that barred them from working for a competitor after leaving WeWork. The clause previously also prohibited workers from working anywhere WeWork operated.

Now, noncompete clauses will only remain intact for 100 executive-level employees. A modified noncompete clause will exist for about half of the company's U.S. employees.

In a statement, WeWork said it has been working with the state attorneys general for two years and that the company was already in the process of revamping its policy.

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The attorneys general of New York and Illinois announced a settlement today with the office space rental firm WeWork. The settlement is over its employment contracts. WeWork has agreed to eliminate or modify noncompete clauses that restrict its employees' ability to find new jobs. NPR's Yuki Noguchi reports.

YUKI NOGUCHI, BYLINE: Originally noncompete clauses were used for executives and for people in high-tech positions where companies wanted to protect intellectual property or trade secrets. But now all kinds of companies apply them to workers, including at the lowest level, creating restrictions on where those people can find future jobs. Amy Spitalnick is a spokesperson and senior policy adviser for the New York attorney general.

AMY SPITALNICK: Putting people like baristas and cleaners and other low-level workers under the restrictions of a noncompete is simply not what they were intended for.

NOGUCHI: But she says WeWork had been doing just that. All of WeWork's 3,300 U.S. employees were required to sign employment agreements that barred them from working for a rival firm for a year. The prohibition extended to anywhere WeWork has operations. Because WeWork has more than 150 locations in the U.S., that sharply limited the ability of workers to move to a competitor. Alan Krueger is a Princeton economist. He worries the proliferation of noncompete clauses could be limiting wage growth.

ALAN KRUEGER: One of the ways in which workers do obtain higher pay is by searching for jobs that offer better pay, better working conditions. And to the extent that this is restricting mobility, I think it is probably restraining wage growth.

NOGUCHI: Krueger's research shows about 1 out of 4 U.S. workers can't switch jobs freely because they're under noncompete clauses. WeWork pioneered the office rental subindustry known as co-working. It rents and develops communal office spaces that individuals and companies can then lease on a monthly basis. Within a decade, WeWork has become the world's biggest player in that industry. WeWork is not alone in attracting regulatory scrutiny. In July, the attorney general of Washington state won concessions from seven fast food chains to drop language that prevented workers from getting jobs within their own franchise. Other states attorneys general including New York have said they continue looking into similar cases in other industries.

As for WeWork, its original noncompete clause will now apply only to a hundred executives. The duration of the noncompete will be shorter for about half of U.S. employees. In a statement, WeWork says it has been working with the state attorneys general for two years and that the company was already in the process of revamping its policy. Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.