How to Not Get Screwed When Quitting Your Job to Start a Business (Part 1)

rodgerscollective_background02So aren't you like, totally ready to quit that 9-5, already? Like, for serious.
I don't know what that Valley Girl moment was about just then but on a serious note this article is for the quitters!
If you've been doing the Side Hustle thing for a while and are ready to make your little sumthin', sumthin' on the side a full time gig, there are some things you should do first to avoid a giant pain in the ass when or after your quit your job.
Here are the things you should do:
1. Read your Employment Agreement.
2. Sorry, that's all I got.
Remember, all those documents you were forced to sign back when you got this little “dream job?”
Well, believe it or not, all those words on all those pages have meaning. And you putting your signature to them means you agree to abide by all of those words. So it would be pretty sweet to know what all of those words were about before you high tail it out of your cubicle, eh?
Here are some clauses that may have been in your Employment Agreement, and that may affect you and your business, when you quit your job:
Pretty much means what it says. By signing off on a non-compete you are agreeing to … that's right, you guessed it … not compete with your soon-to-be former employer. So if your current employer is a widget maker and you intend to (or already have) started a business making competing widgets, you may have a problem.
The good news is that there are time period and geographic limitations on non-compete clauses. So your former employer can't stop you from making competing widgets forever and he can't stop you from making competing widgets on Mars (assuming he is not currently making widgets on Mars). So typically a non-compete will be limited to one year and the state(s) where the company is located/does business. However, it is totally possible that your employer had you sign a non-compete that covers all of the world and lasts until the end of time. That is what we would call “too broad” and is often unenforceable in court.
Here are some parameters used in New York to govern non-competes and other restrictive covenants (such as non-solicitations and non-disclosures):

  1. The non-compete must be necessary to protect the legitimate business interests of the employer. Examples of legitimate business interests include being necessary to protect the employer's trade secrets, to protect other confidential information essential to the employer's business, or because the employee's services are special or unique.
  2. The non-compete must also be limited so that it does not prevent an employee from finding employment anywhere (it is totally possible that a non-compete could say that not only will you not create a competing business, but you also won't work for any of its competitors; if you are an accountant and your former employer says you can't work for any other accounting firms, that would seriously shrink your job prospects or possibly eliminate them altogether, so that's a no no).
  3. The non-compete must not operate to limit the availability of goods and services and prevent competition. Essentially, the goal can't be creating a monopoly for your employer.

So, you get the point. Read your employment agreement and see if there is a non-compete in there that may limit your ability to create a competing business or work for a competing employer. And if there is, or if you're not sure, or even if you are sure but want (really need) a second opinion, do not hesitate to at least have a consultation with a lawyer before you make a move.
Note: The word “compete” may be interpreted rather loosely so it may not be entirely obvious what constitutes a competing business with your employer. Further reason why its good to run something like this by a lawyer first.
Now I did say some clauses not one clause but that's probably all the legal talk you can handle for today.
Come by next week when I will post Part 2 of this topic and we'll be exploring the clause where its possible your former employer owns anything and everything you've created (yes, even intellectual property created outside of the office) during the term of your employment. No, I am not kidding.
Until then … be sure to read your employment agreement and any other legal documents you've signed for your soon-to-be-former employer.

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