Most often, it is considered illegal and unethical to start a business directly in competition with your employer. If you intend to do so, then you have only two options: quit your job or don’t open the business.
Have it in mind that any employee who starts a business that is directly competing with his employer whilst still an employee is exposing themselves to being dismissed for gross misconduct and to further civil claims by their employer for things like breach of contract, breach of mutual trust and confidence, breach of duty of good faith, or maybe a breach of fiduciary duty (duty to act in best interests of business that employs them).
Starting a business that competes with your current employer may, however, be considered ethical or legal only if you can do so without stealing company secrets or directly targeting existing customers using company-specific information. Truth be told, your current company was once started by an ambitious entrepreneur, and you have the right to do the same.
Owing to that, branching out and starting your own business can be considered perfectly ethical if you build your new company without taking shortcuts that would directly destroy your current company. As long as you do not breach your employers’ trust, either stealing customers or company secrets, you can start out on your own.
Just ensure that you are not doing it using paid company hours. If you signed a non-compete agreement, you have a legal obligation to abide by it. Ensure to discover the duration of the agreement, and the exact geographical area included. As long as you wait the stipulated time or build your business outside the area, you can start your business legally.
In certain cases, you can still start a business that competes with your employer even if the waiting period is yet to elapse. You can start your business in a different geographical area since it entails you won’t be directly competing with your current employer. Just take your time to understand the details of the agreement you signed.
Things to Consider When Starting a Business in Competition With your Employer
Although it will likely be considered illegal and unethical to start a business directly in competition with your employer, here are things to consider;
Table of Content
Check Your Employment Contract
When getting hired, potential employees negotiate pay rate and vacation time, deliberate on benefits, and after consideration, decide if they want to accept or decline the position. At some point during the onboarding process, a good number of employees sign an employment contract, which stipulates certain dos and don’ts for the employee.
You may have signed it without even understanding it, but it’s necessary you dig it up to take a second and more critical look at it. Most often, these contracts include clauses that can restrain you from competing with your current employer. There may also be a possibility that you have signed a nondisclosure agreement (NDA).
This sort of agreement is primarily to refrain employees from talking about, sharing, or disclosing company methods and secrets. If you start a new business, you are expected not to use or leverage your company’s methods, trade secrets, client lists, or other proprietary information with you.
Assess Your Role
Even without an employment agreement, have in mind that your current position with your employer may restrict you from starting a business that will compete directly with the company. For instance, if you are an officer, director, or manager, you are considered a key employee.
Note that both key and skilled employees (i.e., software developers, marketing specialists, sales representatives) owe certain legitimate fiduciary duties to their employer, even in the absence of an employment agreement. Owing to that, key and skilled employees can start a competing business, but they are not permitted to start business operations while still employed.
But if your business idea won’t directly compete with your current employer, then you can go ahead to plan your business and startup operations as long as doing so won’t in any way interfere with your duties and won’t go against your employment agreement or other company policies.
Consider Speaking With Your Boss
Most often, an employment contract will include a clause that mandates an employee to inform their employer of their plans to leave within a stipulated time frame. If after going through your employment documents you found no such thing, experts disagree as to whether you should say anything or not.
Some advise against it because they believe that running your own business will compromise the quality of work you are currently providing your employer. Some other schools of thought advise you to inform them of your new business and when you expect to work on it.
They believe it will make your professional life easier in the long run because such transparency would create and foster trust. If you choose to inform your employer, make sure to reassure management that your current performance at work will not be affected.
Don’t Take Your Employer for Granted
You should never talk about your part-time business to other employees even during breaks. This could be considered promoting your business on company time. Maintain that separate line between your current job and your new side business. The silence rule extends to discussions on company time with your employer’s clients and suppliers as well.
Ensure you do not use office supplies or software from your current employer. Do not use any resources as it could present a legal challenge later. They may be able to read whatever keystrokes you enter, even if your emails were not entered into the company’s email system.
You should also try not to poach your current employers’ clients or even your co-employees. Even without a non-solicitation clause in your employment contract, these actions can lead to claims against you and your new business for interference in business relations.
If you want to begin your own company, you owe it to yourself to explore your options. However, ensure that your side business does not compete directly with your employer. It is considered unethical and could ruin your reputation permanently.
If you intend to start a side business that will directly compete with your employer, then it is important to quit your job. Also, note that a good number of companies make employees sign non-compete agreements, and going against this rule could expose you to serious legal issues.