December 15th, 2020
Contents
December 15th, 2020
These days, it's not very common to start at one job in your teens and twenties and then stay there for life. Although generations prior might have done that, today's workers are more likely to move between workplaces, either to continue to progress their career or simply because they want different things. With the explosion of online businesses in the past several years, it's also common to see workers leaving their traditional jobs and starting their own online business. Many will also leave the employment of another to open brick-and-mortar businesses.
All this employment mobility raises the following question: when you've been working for someone and like what you do, but you want to move on to open your own business, are you legally permitted to compete with your former employer?
The answer to that is not an easy question. Often it depends on the industry you are in, the type of work you do, the education you have, and most importantly, the demands your former employer may have put on you through written agreements.
It's not uncommon to be asked to sign an Employment Agreement or a Non-Compete Agreement at the start of your employment relationship. These documents restrict what you can do after you leave your employer.
In this guide, we'll go over the things you need to consider when deciding whether or not you can safely compete with your former employer. Please be advised nothing in this document constitutes legal advice and everything here should be taken as informational only.
Before figuring out whether you can compete with your former employer, it's important to understand the different agreements that might apply. An Employment Agreement is a document that a new employee signs at the start of their new job. The Employment Agreement contains all of the details of the employment, such as the new employee's title, the salary or fees, the type of employment, the schedule and location, any applicable bonus structure, etc. Employment Agreements may also contain a clause which states that the employee may not compete with the employer either during the course of their employment or after they leave, for a certain time period and in a certain geographic area. This is called a non-compete clause.
A Non-Compete Agreement is a more expanded version of a non-compete clause. It is a document in which a person or business asks the subject of the Non-Compete, usually an employee or potential employee, not to compete with the business in one of several ways. Generally, Non-Competes will restrict the activities of the employee after they leave the business, including by making sure the former employee can not open a competing business within a certain geographic zone for a certain period of time. Sometimes, Non-Competes will go so far as to say the former employee can not work with direct competitors of the employer, in any way.
Now that we've discussed what the documents are, the question remains: can you compete with your former employer? Below are some things to consider.
Of course, the first thing to consider is whether you signed a restrictive clause or agreement. If you have, the answer is clear: you cannot compete with your employer.
A Non-Compete clause or agreement will not restrict all of your activity, however; it will restrict specific competitive activity, usually in a specific geographic area for a specific time. This is where it might be a good idea to speak with an attorney licensed in your state. Even if you have signed one of these documents, an experienced attorney will be able to walk you through the things you can do and the things you should avoid.
Conversely, an experienced attorney may also be able to give you some input on whether the clause or agreement is valid. Often, employers will try to make these documents as restrictive as possible, in direct contravention of state law. Having a legal eye on the document before you signed it is always a good idea, but if that didn't happen, it may be wise to get an attorney's help to figure out how to proceed after your employment ends.
Final takeaway: If you've signed a restrictive agreement or covenant, it's a good idea to get an attorney's help to ascertain the bounds of your restrictions.
Even if you didn't sign a Non-Compete, you will want to check and see if you signed a non-solicitation agreement or if there is a non-solicitation clause in your Employment Agreement. Non-solicitation clauses say that the employee cannot solicit clients, customers, and other employees of the business.
Non-solicitation clauses and agreements are directly related to unfair competition because they say that even if you didn't sign a Non-Compete, and can open a competing business, you can't go directly to clients, customers, and employees and lure them away from your former boss.
In other words, make sure you've gone through all of your employment documents to ensure you won't be running afoul of any non-solicitation clauses or agreements. Even if you haven't signed any restrictive documents, you may wish to avoid the practice of stealing your former employer's clients, customers, and employees because it may end up coming back to bite you in the future.
Final takeaway: If you've signed a non-solicitation document, be sure you don't directly solicit anyone related to the former employer's business.
Although you may not be restricted from competing with your former employer through agreements, you still have some (very important) things to consider. Namely: are you using any of your employer's intellectual property without their consent? If so, it is in your best interest to stop, immediately.
Intellectual property is the employer's brand name, their logo, any slogans that they use in advertising, and the important non-tangible property that they use in their business. Intellectual property can be in a trademark, copyright, patent, or trade secret. It can even be a special formula that the employer uses for something that no one else knows.
Even if you haven't signed an agreement prohibiting you from competing, using your former employer's intellectual property is a big "no-no."
Final takeaway: Never, ever steal intellectual property from your former employer.
This is very much related to not using your employer's intellectual property: you may also not use any confusingly similar intellectual property. For example, if your employer's business name is "Wonderful Wordsmith, Inc.," and you decide to leave to try to compete with them, you cannot name your business "Wordsmith Wonderful, Inc." In trademark law, the idea of a name that is "confusingly similar" to customers is considered infringement.
In other words, if your goal is to intentionally confuse customers so that they think your business is your former employer's business, or so that they think your business is associated with your former employer in some way, this will be considered intellectual property infringement and if your employer wishes, they could go after you in court.
The bottom line: don't try to confuse customers or clients with a confusingly similar business name or other confusingly similar intellectual property.
Final takeaway: Come with your own creative business name and intellectual property that have nothing to do with your former employer.
Just like using your employer's intellectual property, there's one more big thing you can't do: use your employer's confidential information.
Generally, a clause about confidentiality will be contained in your employment agreement. A clause like this will say that you are not to use or disclose any of your employer's confidential information, which can be defined in a variety of ways: customer lists, marketing information, financial information, product development, and more. You might have also signed a Non-Disclosure Agreement, which generally says the same thing as a confidentiality clause.
Even if you didn't sign a Non-Compete, using your employer's confidential information is not only in bad taste, it could be unlawful. Because of this, stay away from using anything that you know your employer would have considered confidential to their business.
Final takeaway: You must not use, or even disclose, any confidential information you had access to when you were an employee.
Often, employees at the highest levels, like officers and directors, are considered fiduciaries to the company for which they worked. This means that there is a special relationship of trust between those high-level employees and the business.
Even if you weren't an officer or director, if you maintained special relationships with the customers or clients of the business, such that you know they would follow you if you left, you may be legally considered a fiduciary.
In either case, you are generally prevented from being able to solicit customers or otherwise unfairly compete with your former employer.
Final takeaway: As a fiduciary, or as an employee that maintained special relationships with customers or clients, you may not solicit those customers or clients and in some cases, may not even tell them you are departing.
When deciding whether or not to compete with your employer, take some time to sift through all of the questions above to understand what your responsibilities and potential liabilities are. Either way, whenever you have questions about the possibility of competing with your former employer, it's always a good idea to contact a licensed attorney in your state.
About the Author: Anjali Nowakowski is a Legal Templates Programmer at Wonder.Legal and is based in the U.S.A.