Last Updated on July 20, 2020
Before you launch a side business or leave your current day job to start your own business, reviewing any restrictions on your ability to build a competing company can save you a considerable amount of time and money down the road.
Non-compete agreements can serve as a substantial deterrent to budding entrepreneurs. Although the sweeping language of non-competes may seem intimidating, understanding your rights and evaluating your circumstances will give you peace of mind.
Did I Sign a Non-Compete Agreement?
There is a lot of paperwork involved in the initial hiring process. You may not remember everything you signed, especially if you have been with your current employer for several years. The first step to determine what restrictions you may have to deal with is to dig out copies of your signed paperwork and carefully reading the terms of any application, employment contract, or letter of intent.
Reviewing your employment contract is key since the strength of the non-compete provision may be dependent on the other terms throughout the document. The future success of your new business venture and personal finances depends on the proper understanding and navigation of these documents. If there is anything in the documents you are unsure of, it is worth a small investment to schedule a consultation with an employment attorney to review your paperwork.
What If I Did Sign a Non-Compete?
If you are willing to work around the non-compete rather than challenge it, there are some options available to you. You may consider starting a business in your chosen field while avoiding activities that compete with your former employer. For example, if you previously worked at a computer store, but you want to start a business to develop a new computer software or component, there probably won’t be an issue since you are not competing for the same clientele as your old company. However, if you signed a non-compete and intend to establish a computer store, you will certainly run into problems.
If you insist on starting a competing business, you may be able to do so within the geographic restrictions outlined in the non-compete. Some states only uphold non-compete agreements that impose a reasonable geographic restriction. This means that a non-compete cannot outright limit you from working in the same field within the entire state or entire country. This really depends on the specific industry and state laws. For example, a non-compete agreement may specify that an employee may not work at a competing company within 25 miles of the employer. If your agreement has similar defined restrictions, you can assume it is safe to conduct business outside the specified radius.
Ensure you don’t use any intellectual property or trade secrets such as manufacturing processes or customer lists to start your business. Also, using company resources to work on your business during company time should be avoided at all costs, as this gives your employer a stronger case.
States are also usually in favor of reasonable time restrictions in non-compete agreements. If you intend to compete with your former employer directly, you may consider waiting out the stipulated time period, usually 6 months to 1 year. While not ideal, waiting out this period can give you additional time to prepare for opening your new business and help you avoid an unnecessary legal battle.
Is The Agreement Enforceable?
As mentioned above, many state courts have established strict criteria for what makes a non-compete enforceable. Depending on your state’s laws and court decisions, it may be easier to challenge a non-compete agreement than your average contract.
If you intend to break or challenge a non-compete agreement, you should always get advice from a qualified employment attorney in your state. An attorney can evaluate whether any legal arguments apply to your situation. Your attorney may help you void the agreement or negotiate new terms or a waiver with your former employer.
If you are concerned about any potential retaliation from your current employer regarding your new venture, the cost of a legal consultation is much less than litigation costs in a future lawsuit. Most companies would rather negotiate with you than go directly to court. It’s essential to be clear about your goals in starting your business and communicating these to your attorney to achieve the best outcome. The surest way to sabotage your chances of negotiating new terms with your previous company is by soliciting their clients and best employees for your competing business or using proprietary information for your own use.
While non-compete agreements may seem intimidating, taking the time to understand terms and your options will empower you to make the best decisions in starting your business.