For those who may not know my background, before I joined Richard here at Law Plus Plus, I worked at an e-discovery firm in Charlotte. Officially, I was an employee of another firm who sent me to various projects, on a project-by-project basis, like an independent contractor. As many do, I got tired of this arrangement, and when the opportunity presented itself, I left. I took the leap into entrepreneurship.
Making the leap to entrepreneurship has different complications for W-2s and independent contractors. This is because our previous employers usually have a signed non-compete or non-solicitation/non-disclosure agreement. Employers incorporate these agreements to protect their businesses from unfair competition. Think about it – they spend money and time training employees and contractors. You get to meet their clients and learn best practices honed from years of experience. Employers protect themselves by limiting how you can compete with them after termination of employment.
As we’ve explained these agreements and their limitations before, I’ll briefly summarize. By signing this agreement, employees limit their ability to directly or indirectly compete with a former employer, for a duration of time, and within a specific geographic region.
These agreements restrict your ability to solicit known or potential clients of a former employer, and can also restrict your ability to hire other employees of a former employer.
Non-Disclosure Agreements (NDAs) require you to keep certain information confidential. By opening your own competing business, you have to be very careful NOT to use any confidential information. This can include documents, software, and confidential business practicesof your former employer.
Steps to Protect Yourself
How can you be successful without violating any of the above or other agreements with a former employer? The answer is to have your contracts reviewed by a trusted and experienced attorney.
However, just because you believe that you’re in compliance with all of your contractual duties does not mean that your former employer will agree. To an employer, your new business can be a big threat to their bottom line and customer base, so they may try to bully you out of business. They may also take it personally when you leave and open up a competing business, so emotions are likely to play a big role.
What can you be on the hook for if you’re found to violate one of these agreements? Well, it depends on the agreement itself. Some contracts have liquidated damages. Liquidated Damages is a fancy term for damages that are agreed upon within the contract itself. They technically do not require a judgment to enforce. Damages can also be ascertained at trial. These damages will usually include whatever losses of profit that you have “cost” the employer by violating one of these clauses.
The best advice I can give to a budding entrepreneur (not legal advice), is to seek the counsel of an attorney familiar with the limitations on non-competes, non-solicitations, and nondisclosure agreements, preferably before you start your business. On top of this, an amicable departure from your previous employer can be worth its weight in gold. If your previous employer and you still work together, there’s less chance they’re take legal action against you.
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