For some, the ultimate career goal is not rooted in moving up the ladder and seeking out or accepting higher positions within a company or organization. Instead, many professionals with entrepreneurial aspirations want to be their own boss, utilizing their talents and skills to start their own company. If you have dreams of starting your own company, you still often need to work for someone else before that dream becomes a reality, and with that necessary stepping stone often comes the dreaded non-compete agreement.
The purpose behind non-competes is noble — what business owner would want to let trade secrets and proprietary information slip through the cracks when employees seek positions with rival companies (or give rival companies strong incentive to poach current employees)? And in fact, according to a 2016 report by the U.S. Department of Treasury, nearly 30 million employees are working under a non-compete agreement. So what if you represent one of those 30 million professionals who wants to branch out and start your own company?
1. Before you do anything, read your non-compete.
Maybe you read it thoroughly when you were hired, or maybe you were so thrilled to be offered the job you signed on the dotted line without so much as a second thought about the non-compete. Either way, before you do anything, read the non-compete and make sure you understand exactly what type of employment/business it prevents you from engaging in.
Stephanie Singer, who advises emerging technology companies and life science industries on corporate matters and is an author for TechCrunch, advises those concerned about the impact a non-compete will have on their startup ambitions to really think about what their agreement means by asking thought-provoking questions.
For example, will your new business be targeting the same customers as your current employer? Is the information/technology necessary for the startup similar to that of your current employer? The answers to these questions can indicate tell-tale signs that your non-compete will or won’t be violated.
In addition to those questions, particularly if you’ve answered “yes” to at least one, you’ll want to determine the length and geographical scope of the agreement and factor those into your action plan.
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2. Review the laws and legal precedence of non-compete litigation in your state.
Non-compete standards and their exceptions vary from state to state as do the extent to which they’re enforceable, so you may find that what is a dead-end in one state may be a minor glitch in another. For example, California, North Dakota and Oklahoma largely prohibit non-competes, and some states, like Illinois, prohibit non-competes based on wages.
3. Contact an attorney for legal advice.
Unless you’re 100% sure, without a doubt, that your non-compete does not put your future company in jeopardy, it’s worth your time (and money) to seek legal advice. Attorneys that are well versed in employee rights laws can quickly determine your risk and offer advice on how to proceed. Plus, as a future employer, it can’t hurt to make a contact that can help you address future employee/employer questions and even whether you’d ask your own employees to sign a non-compete down the road.
4. Consider speaking to your employer about negotiating the non-compete terms.
Some employers put non-compete agreements in to prohibit employees accepting positions with their direct competitors, while others may take issue with employees moving into industry specific positions. Still others may simply use it as a formality to protect trade secrets, but they aren’t posed to seek legal action if that information is not at jeopardy.
If you have a good relationship with your employer, honesty may be your best policy. Of course, it’s smart to practice caution here, as some employee/employer relationships don’t permit this type of discussion. However, if you are able to discuss your non-compete with your employer you may find that you can determine specific stipulations for the duration of the agreement. For example, your employer may not contest your business plans by lobbying the non-compete if you refrain from targeting specific clients or limit business to or away from a specific geographic boundary.
Even if you do have a great relationship with your employer and negotiations seem likely, it may be in your best interest to seek that legal advice first so an experienced attorney can provide insight on your specific situation and perhaps even negotiate on your behalf.
A signed non-compete may add some extra steps to your ultimate entrepreneurial goals, but it doesn’t have to represent a major roadblock and an end to your dreams. By thoroughly reading and understanding your non-compete, reviewing the legislation put forth by your state and seeking qualified legal advice, you can come up with an action plan that will help you move forward. And remember — you’re going to face many more business challenges down the road like getting a loan to start your business or hiring your first employee, so getting your non-compete handled first can clear the way to tackle what’s next.
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This article was originally written on April 28, 2017 and updated on January 20, 2021.
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