NYAG Continues Scrutiny Of Overbroad Non-Compete Agreements

The New York State Office of the Attorney General ("NYAG"), working with the Illinois Attorney General, announced on September 18, 2018 that it had reached a settlement with WeWork Companies, Inc. ("WeWork") regarding its use of non-compete agreements. The WeWork settlement follows earlier non-compete related settlements by the NYAG with, among others, Jimmy John's Gourmet Sandwiches ("Jimmy John's") on June 22, 2016, and Examination Management Services, Inc. ("EMSI") on August 4, 2016. The NYAG also recently published an FAQ on the use of non-compete agreements in New York, which identifies these settlements, as well as highlighting non-compete legislation that the NYAG proposed to the New York Assembly. Based on these settlements and the proposed legislation, a theme has emerged, which provides valuable guidance to New York employers in their use of non-compete agreements.

The primary focus by the NYAG appears to be on the use of non-compete agreements with low-level/low-wage employees. As stated by former Attorney General Eric Schneiderman in the Jimmy John's settlement press release, "[n]on-compete agreements for low-wage workers are unconscionable," "[t]hey limit mobility and opportunity for vulnerable workers and bully them into staying with the threat of being sued. Companies should stop using these agreements for minimum wage employees." Similarly, in the recent WeWork settlement announcement, the NYAG called the non-compete agreements "overly broad," and focused on the fact that all employees, including "cleaners, mail associates, executive assistants, baristas, and more, some of whom are paid as little as $15 an hour," were covered by these agreements. Notably, the WeWork settlement, which released the majority of employees from their non-competes, did not release WeWork's roughly 100 executive ("Leadership Level") employees from their obligations.

Another related issue, which is present in the settlement announcements, is the lack of access to confidential or trade secret information. Not only were many low-level/low-wage employees required to sign non-compete agreements, but those employees had very little, if any, access to sensitive information. As seen in the WeWork settlement announcement, the NYAG took exception to the fact that "WeWork used non-compete agreements that prohibited all employees from working for competitors after leaving the company, regardless of job duties, knowledge of confidential information, or...