Leaving your job and establishing a competitive firm in direct competition with your prior employer is one of the most dangerous ventures an entrepreneur can do.
Those that get it wrong risk being sued, which can be a disaster for any new firm.
I want to sever relations with my workplace and establish a competing firm. Can my employer forbid me from doing so?
Before you take any action, ensure that you have a copy of your employment contract. These may include explicit and inferred commitments that apply throughout and after your engagement with your former employer. Generally, if you are not a director, LLP member, or partner with fiduciary responsibility, you may take “preparatory activities” toward establishing a competing firm without violating your commitments.
This, however, is contingent upon the nature of your declared duties. Additionally, keep in mind that they may not be included simply in your employment contract. They may be found in several areas, including service agreements, shareholder agreements, membership or partnership agreements, long-term incentive programmes, bonus plans, or other forms of payment.
I worked on a brilliant concept for my job, but it was never implemented — can I use it when I start my own business?
This is a place where extreme caution is required. Generally, any innovations, works, designs, databases, or names created while working for a firm related to it cannot be utilised to start a rival business without prior authorization; otherwise, you will infringe your employer’s intellectual property rights.
Additionally, if you worked for a competitor, you are likely to have access to some of their confidential information until you return business property, hard and soft copies of documents, memory sticks and devices, and permanently delete documents on personal devices or email after your employment. This is a critical topic to consider because if you use this information to violate your contract and cause harm to or threaten to create damage to the firm you are quitting, it is probable that enforcement action against you or your new business will be initiated.
Okay, I’m relieved that my contract permits this and that I’ve made efforts to protect my intellectual property. How fast am I able to get started?
You may be excited to begin. However, the period you may start a new company is based on any notice period and/or gardening leave. These are often outlined in your employment contract, and if your employer provides notice, it must be at least the statutory minimum of one week each complete year of service, up to a maximum of 12 weeks.
Employers often have the ability under your employment contract to put you on garden leave, which requires you to stay away from the office and avoid contacting coworkers or customers until when told to do so. Still, all other contractual duties remain in full force and effect.
Garden leave is often simpler to enforce than restrictive covenants and serves as an effective weapon for your employer to defend against the competitive threat you may provide.
While you may believe that garden leave is an advantageous time to establish your new competitive firm, you are still bound by your contract’s provisions, and your employer will closely monitor your actions to ensure you do not violate those commitments. Suppose there is no contractual right to put you on garden leave. In that case, you may be able to claim that there has been a breach of contract and therefore, the provisions of your contract are no longer binding. Still, it is strongly advised that you obtain legal counsel from an experienced employment attorney first.
While you are still employed and obligated by the provisions of your employment contract, you are only permitted to take reasonable preparatory actions to avoid breaching your duties. As long as there are no express obligations preventing you from doing so, you can purchase an off-the-shelf company, arrange for business premises, meet investors and other potential business contacts, seek professional advice, and prepare a business plan, as long as these activities are carried out outside of your normal working hours and without the assistance of your current employer.
What if I’m ‘bringing’ others along?
When two or more individuals leave one firm to join another, this is a team move. A team relocation may violate an express post-termination prohibition in your employment contract that prohibits you from relocating and working with another person with whom you previously worked. This may be an enforceable limitation if it destabilises the staff, especially if you and/or the other persons are powerful inside the firm.
It may also be a violation of an implicit requirement under your employment contract if you have been considering transferring somewhere with a current colleague. At the same time, both of you are still employed by the same employer to compete with that company. Consider your status and future chances before hiring one or more coworkers to organise a rival firm while employed by the same employer or soon after.