Are You Restricted From Starting Your Business?
Updated: May 17
You may have a great idea for a new business. Where did that idea come from? Is it related to your current employment? If so, do you have a written employment agreement with your current employer? Or, have you signed any type of contract with your employer, such as a confidentiality agreement or an intellectual property ownership agreement?
Even if you don’t have a contract with your employer, does your employer have an employee handbook or employment policies?
Even if your answer is “no” to these questions, are you breaching any federal or state laws your current employer might be able to enforce against you if you start your business?
Many employers are savvy about the value of their employees’ expertise and know-how, and the work product they create. They also understand the worth of their confidential information, such as client lists, client preferences, client contacts, vendor and supplier information, pricing methodology, internal financial information, research and development efforts and results, and business methods and techniques. Some of that confidential information might be valuable simply because it’s kept secret, like a secret recipe, secret software code, or a secret algorithm. As a result, employers might require employees to sign contracts to protect that information. Those contracts might range from a comprehensive employment agreement that contains restrictive provisions to narrow-purpose contracts that restrict certain types of activities.
An employer’s contract might contain provisions about who owns the ideas, concepts, secrets, and work product an employee develops or creates as part of her employment.
An employer might have an employee handbook or written policies that cover those same issues. Even if you didn’t sign a written contract with your employer, you might have signed a legal document indicating your receipt of (and even review and agreement to) an employee handbook or written employment policies.
The law might contain restrictions or address ownership issues, even when you don’t have an employment agreement, an employee handbook, or employee policies. For example, the trade secrets statute for the state in which you work will define what a trade secret is and prohibit its misappropriation. And, the US Copyright Act indicates that an employer owns the copyrights to work product created by an employee within the scope of her employment.
You need to research whether any of these sources (contracts, handbooks, policies, and laws) might create a risk that would prevent you from starting and running your business. If you have a contract, handbook, or employee policy that includes provisions about confidentiality, non-solicitation, non-competition, or ownership of intellectual property rights (e.g., ideas, concepts, copyrights, trade secrets, trademarks, or patents), have a lawyer who has experience with those issues review and advise you on their impact before you move forward.
Even if a contract, handbook, or policy might appear to restrict or prevent you from starting and running your business, your lawyer can advise you on their enforceability. This analysis won’t reduce your risk, but it will help you quantify it. You might be able to move forward regardless of the restrictions if your lawyer believes they are unenforceable and you are willing to risk the time and effort of a fight and potential loss if your employer decides to try to enforce the restrictions.
Consult with a lawyer about how applicable laws might restrict or prohibit your new business. Tell the lawyer what you plan to do, how you plan to do it, what you will use to do it, and the origin of your ideas and methods. Then the lawyer can analyze your proposed business in light of those applicable laws.
Don’t think you can avoid these issues because your employer will never find out; employers always seem to find out.
Do your legal due diligence before you launch your business. Get as much comfort as you can from your lawyer that what you intend to do is not restricted or prohibited. Doing this research at the beginning will avoid a lot of problems. Even if you get the news that you shouldn’t launch your business, that’s valuable information.