Starting a business is an exciting and rewarding experience, however, it may also be risky if done incorrectly. One of the biggest mistakes new entrepreneurs make is starting a business while still employed by a potential competitor. This may lead to legal troubles and damaging your reputation in the industry.
The law is clear on this issue: if you are currently working for a company, particularly if you are a key employee, you are unable to operate a competing business. This includes hiring employees from your current employer without first checking their agreements with the company and their knowledge of trade secrets. Even incorporating your new business may lead to a lawsuit from your current employer.
To avoid legal disputes and courts, would-be entrepreneurs should first go to their current employer and either resign or tell them what they are doing and ask if they would be interested in investing. While this may seem daunting, it is often a smooth way of ending that relationship. It is crucial you never misrepresent the nature of your new business to your current employer.
Even after leaving your current employer, you are unable to use or disclose the company’s trade secrets. The so-called inevitable disclosure doctrine means if you have been exposed to trade secrets at your job and then leave to work for someone else, and if your responsibilities in the new job are sufficiently similar, some courts may conclude it’s inevitable you may use the information you had from the earlier position. This may result in an injunction prohibiting you from working for the new employer until a number of months have passed and any trade secrets you had are stale.
It is also important to know whether potential recruits are subject to covenants never to compete. You should check to see what assignments of inventions might have been signed and review personnel files to be certain a covenant not to compete or an assignment of inventions was never tucked into a signed non-disclosure agreement.
Starting a business while employed by a potential competitor or hiring employees without first checking their agreements with the current employer and their knowledge of trade secrets is a risky move. Entrepreneurs must be aware of the legal implications and take steps to avoid potential legal troubles. Honesty and transparency are crucial, and it is important to follow the law and protect the trade secrets of your current employer.
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