A Charlotte startup company that offers communal working space for women is facing claims that the company did not pay lower-level workers as it got off the ground.
Coterie Company is the subject of at least two investigations within the state of North Carolina’s Department of Labor, the department said. The Wage and Hour Bureau refused to disclose any more information while the cases are pending.
Coterie founder and CEO Joanna Bailey acknowledged that five former employees have filed claims with the state labor department seeking unpaid wages.
Agenda interviews with a half-dozen former employees described young women accepting jobs at Coterie with promises of a lucrative salary and frequent travel — but then quickly growing frustrated when they did not receive paychecks for months despite assurances they were coming soon.
Bailey also accedes that employees were not paid for a period of time. She said that since January 1, staff members have been paid half of their salaries with the other half deferred. Coterie is also setting up payment plans through the state labor department with employees who filed claims.
But Bailey says she had always been transparent with workers about the company’s financial situation and that employees came on board knowing that they might not be paid for their work indefinitely.
Coterie leaders characterized the claims with the state labor department as the work of “disgruntled” former employees.
“They all came on board knowing exactly where we were as a company, knowing exactly what was going on financially. We’ve been very transparent about our startup, about not having funding and this being bootstrapped,” Bailey said.
“There were no surprises.”
The experience of Coterie is an example of the growing pains of the fledgling Charlotte startup scene.
It is certainly not unheard of for startups to go periods without paying people, and it’s even common for founders or equity-holders in the company to forgo salaries while the company gets off the ground. Legal experts warn that even this can be illegal in some cases.
Most notably, the music service Pandora did not pay its 50 employees for two years while in between rounds of funding, the founder has said. Two of them sued the company for back wages. When a new $9 million round came in, co-founder Tim Westergren said everyone was paid back, according to a story he told at Hustle Con in San Francisco.
Stories like these are still rare in Charlotte where the culture is more reserved, and fewer companies expect to become fast-growing startups quickly.
A new type of coworking space
From the beginning, Coterie expected to be a high-growth business.
The company launched in Charlotte with a noble mission and grand ambitions: to create a female-friendly work environment for creative professionals, and to spread that throughout the globe.
The plan was to be in three more cities by the end of 2016, with 40 locations in four years.
As many startups do, Coterie faced struggles from the beginning. Coterie appeared close to opening an office just south of Uptown in August — even hosting a ribbon cutting — before changing plans. Bailey blamed the commercial real estate market and said Coterie would construct a new building.
Around the same time, Coterie opened up a coworking space in Pittsburgh, and the company was in the process of scouting other cities.
In Charlotte, Coterie ultimately was offered space at Packard Place, the startup incubator in Third Ward. Most of the coworking is managed by HQ Charlotte, the Raleigh-based coworking startup. Coterie was billed as the luxury piece of the coworking puzzle. Dan Roselli, owner of Packard Place, did not respond to requests for comment for this article.
Bailey advertised prices of $195/month for part-time memberships and $425/month for full-time memberships. Advertised perks include laundry service from 2ULaundry and concierge services from Uptown Errands.
Several of the employees who spoke to the Agenda were hired in the summer to early fall of 2016, around when the Charlotte location was supposed to open.
Employees were hired under different arrangements. Some were hired on a straight commission basis — meaning they only got paid a percentage of the revenue they brought in. Others were offered a salary with bonus potential.
Job offers reviewed by the Agenda did not include equity, and none of the employees who spoke with the Agenda were given stock or ownership in Coterie.
Former employees who spoke with the Agenda said they were told that they might not initially receive pay. But as the months dragged on, the requests for payment became more urgent.
Meredith Kyle, who was hired for a sales position, said she started in July and was promised a paycheck in September. When that didn’t come, she said she was forced to move back in with her parents and sell plasma to stay afloat. Kyle said she was then told pay would come at Thanksgiving. That didn’t happen either.
In December, Bailey told employees that all the cash the company had was used to open the location in Pittsburgh, and that furniture needed to be bought.
Along the way, former employees who spoke with the Agenda described different tactics to keep people from leaving — including promises of a bonus, or increased salary when the company became profitable.
Some employees who stayed with the company describe working side jobs to make ends meet, but said they stayed with the company because they believe in the mission.
“I decided to join fully not expecting to get paid for awhile,” said Blair Overman, who started with the company in October and is currently the company’s operations manager. She does not own any equity in Coterie.
“Yeah, it sucks not to get paid. I’ll be the first to tell you. My husband will be the second to tell you. But there wasn’t any gray area or misunderstanding.”
The failure to open the coworking space in August or September marked a significant inflection point for the company. A wave of employees left at that point with no prospect for pay in sight.
“Not opening in Charlotte almost killed us,” Overman said.
A new wave of employees then began to be hired. Overman said company officials sat down with the N.C. Department of Labor at that point to figure out the best way to structure employment agreements.
Overman said Coterie was told it could hire people at half-salary for 90 days, with the rest of the salary accruing for payment later. She said that is what’s currently being done for Coterie staff.
Bailey said the company is now looking to hire people who have worked at startups before and are accustomed to their vagaries.
In November, the company required employees to sign a letter agreeing that they understood they were working for a startup, that risks included “delayed salary until financial milestones are met” and that they understood that “delayed salary means that any salary missed due to financial constraints will be paid out by the company when financially able,” according to a copy of the letter provided to the Agenda.
What comes next?
Today, Coterie has about 15 to 20 members who work from the coworking space in Charlotte, about 10 percent of the company’s goal.
The team is leaner, too, Bailey said, with eight employees.
But she said the events business is picking up, and that Coterie has booked events with Google and Red Ventures.
Bailey said she believes events holds more revenue promise than coworking memberships in Charlotte because the market here isn’t used to an offering like theirs.
“I think the women of Charlotte are unaccustomed to opportunities being provided for them,” Bailey said.
The ambitious plans for 40 locations in only a handful of years are on hold.
“We now want to focus on getting everybody to full pay,” Overman said, adding that Bailey is also seeking to bring on outside investors.
Overman also said she is actively applying for grants. “It’s all hands on deck to make sure we get funding in.”
Bailey said she does not regret how she has managed the company.
“We’re pretty happy about the way we’ve done things,” Bailey said. “Are there lessons learned? Absolutely. Our intention is to continue to move forward.