Management

Avert Legal Battles with a Former Employer in Your Industry

Avert Legal Battles with a Former Employer in Your Industry

When you leave a company to start your own, it's logical to make use of the knowledge, business relationships and experience you already have. However, if your new venture is in the same industry as your former employer, it's important to know your legal rights.

By Tara Remiasz


When Eric Cedo was contracted by his employer to run a nonprofit that attracts young professionals to the Detroit area, a lot of people asked for his advice on how to connect with younger audiences. It wasn't long before Cedo realized there was a demand in the marketplace that wasn't being fulfilled. Upon this realization, Cedo started a company, BrainGain LLC, an agency focusing on social media, public relations and Web 2.0 marketing that targets young tech-savvy audiences.

From the start, Cedo was honest with his employer about his intentions to launch his own company. Fortunately for Cedo, his boss embraced his open, honest approach. Because of the good standing he had with his company, Cedo was able to tell clients about his new venture and kept ongoing relationships with many of them.*

Play It Safe
Cedo's experiences represent the best-case scenario, where open communication resulted in a supportive past employer. But nothing can incite legal action quicker than a company that feels its competitiveness is being compromised.

I believe pretty strongly in the power of partnering, not competing...a former employer could become a client one day or possibly even purchase your business, should you decide to sell.

When it comes to starting your own business, you need to think very broadly about what constitutes competition, says David Staub, an attorney and partner at Stahl Cowen Crowley Addis LLC in Chicago. If you're considering starting a business venture that's even remotely related to your employer's line of work, one of the first things you should do is contact an attorney. State laws vary widely from state-to-state, Staub says. Even if you never signed a non-compete or solicitation agreement, you are bound by other obligations such as a duty of loyalty.

Although there is a wide variation in what states consider a violation of duty of loyalty, Staub offers this general advice: "Don't talk to any vendors of the employer. Don't talk to any customers of the employer, and don't talk to any employees of the employer."

Knowing Where the Line Is
Taking contact lists or a computer disk with company information are obvious violations of the law, however, using knowledge you gained while at the company can be a gray area. For the most part, employees are able to use knowledge and experience they gained while at the company, says Peter Pizzi, attorney and partner at Connell Foley LLP in Roseland, N.J.

Officer vs. Employee
In general, if you are an officer at your current company, you must meet a higher standard in terms of your duty of loyalty to the company, Staub says. An officer is often responsible for bringing corporate opportunity to the company while a regular employee usually doesn't have that obligation, he says. The implication is that officers might be in violation of the law if they leave a company to start a business their employer could have fulfilled. However, barring any agreements, rank-and-file employees probably have the right to fill a niche their employer overlooked, he says.

Treat Your Former Employer Like a Future Client
"I believe pretty strongly in the power of partnering, not competing," says Eric Cedo, president and CEO of BrainGain LLC. In his view, a former employer could become a client one day or possibly even purchase your business, should you decide to sell.

Prepare to Compete
While still employed, you can't compete with your employer but you can prepare to compete, says David Staub, attorney and partner at Stahl Cowen Crowley Addis LLC in Chicago.

Ways to prepare:

  1. Establish your corporation.
  2. Purchase a domain name for your Web site.
  3. Apply for a Small Business Administration loan.
  4. Set up your office.
  5. Hold preliminary meetings with potential employees.
  6. Consult your attorney for more information.

DON'T do the following under any circumstances, says Peter Pizzi, attorney and partner at Connell Foley LLP in Roseland, N.J.

  1. Call current contacts while still employed at your company.
  2. Take any assets or transfer any data from your employer.
  3. Access data once you've already left your company.

Tips on Approaching Your Employer
In the scenario where there is minimal or no overlap between your proposed business and that of your current employer, Peter Pizzi, a partner at Connell Foley LLP in Roseland, N.J., offers the following tips on how to approach the situation.

  1. Run your plan by a lawyer who will make sure you're covered by federal and state law.
  2. With your attorney, consider whether to approach your current employer about your proposed business, and, if appropriate, draft talking points for that conversation.
  3. Work with your attorney to draft a letter of agreement between you and the employer. The letter could address your employer's reasonable concerns and establish a clear set of guidelines for proceeding with your business.

*The following advice provided by legal professionals is general in nature. It's important to consult your own attorney for specifics that apply to your situation.