Navigating Your Noncompete When Starting a Side Business

Written by Wesley Henderson

September 12, 2020

navigating noncompete

Did you sign a non-compete when you started your most recent job? As non-competes and other restrictive agreements have become increasingly common, it’s possible you did. If so, you need to read this before starting a competing business on the side.

Why employers use noncompetes

Employers use noncompetes to prevent employees from working in a capacity that damages their interests. For example, a noncompete at a tech company might prevent a salesperson from working in the same capacity within a 100-mile radius for a period of one year after leaving the company, and/or from contacting any previous customers for that period of time. It may also prohibit someone from starting up a competing business.

While the employer’s intention is to protect its legitimate business interests, noncompetes often end up being overly broad, restricting the employee’s ability to make a living.

Ultimately, by trying to maintain the upper hand, employers may inadvertently shoot themselves in the foot by crafting noncompete agreements that are too stringent and don’t hold up in court. Which could be good news for you.

What to pay attention to in your noncompete

How strictly noncompetes are enforced varies from state to state. Some states are more favorable to the employers and protecting their interests, while others are more favorable to the employees and their rights to find employment. Because each state is different, you may want to speak with an attorney familiar with the laws in your state to advise you on your options.

Despite the state differences, there are some general guidelines.

Clauses restricting work in a certain area or within a certain period of time.

In general, these clauses are the least likely to be enforced by courts. Take the example from up above – is someone with sales experience in tech really not supposed to work in their field within 100 miles for one year? How are they supposed to make a living? These clauses, which may sound reasonable at first, effectively prevent this person from being employed, and courts usually don’t like that.

Nonsolicitation agreements.

These clauses restrict someone from taking business along with them when they leave their employer. That means that the Rolodex of customers stays with the company when you leave, and you can’t solicit past customers for a certain amount of time. These clauses are usually enforceable and they should be respected.

Nondisclosure and confidentiality agreements.

These clauses prevent you from revealing certain information important to your employer like customer lists, pricing, and marketing strategies. These are generally also enforced.

Can you ignore the noncompete you signed?

No, but it may not be the end all be all depending on how it is written and whether your employer would enforce it. I’d never encourage someone to violate a contract they signed, but that assumes the contract was good to begin with. Many noncompetes aren’t. Here are some things to keep in mind.

  • Employers will often take noncompete clauses from documents they find the internet as-is rather than tailor them for their specific state and circumstances. This is good news for you because it may end up not being enforceable. Again, it depends on how your state views noncompetes.
  • Some states require “consideration,” which is when an employer gives the employee something in return for signing the noncompete clause. This may be additional money, more perks at the job, or something similar. If you signed a noncompete but were given nothing in return, the agreement may be found void.
  • Employers will bring a lawsuit against you only if it’s worth their time and if they can show that your actions have damaged their interests. For many reasons, employers may not want to take it that far.
  • Overly broad restrictions oftentimes void these agreements as well.

In short, take these agreements seriously. What you don’t want is to make progress on your new business venture and then be sued by your current/former employer. A lawsuit at this point could seriously harm or even permanently ruin your business.

Action Steps

  • If you signed a noncompete in the past and are developing a business in the same industry, speak with an attorney in your state about your situation (or at least look for articles and blog posts written by attorneys in your state on the topic). You may discover that you’re not as restricted as you thought you were. In the overwhelming majority of cases, as long as you are not stealing clients or stealing information to use against the company, you will likely not have problems.
  • Another option is to reach out to your employer directly and explain the situation. They may let you out of the agreement altogether or find a way to work with you. For instance, in some circumstances, employers will let an employee out of the noncompete in exchange for a percent of gross revenue.

 

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