What’s Up Wednesday 10/9/19

Know Your Agreement 3:  The Final Installment

We have reviewed various aspects of leaving a current employer in order to found a startup – below is the final installment in that series.  We hope that it’s been helpful.

(As you evaluate departing from your current job), be cognizant of any agreement or document provision that prevents you, the employee, from moonlighting (and working to form a startup while employed by somebody else would certainly apply as such; this language can be a strict inclusion, one that completely prohibits you from engaging in outside business activities, whether or not these would be considered in direct competition with the employer’s business interests).  Such wording can be enforceable.  Remember, as you tinker with your idea or invention (even if the tinkering’s done on your own time), there may be a signed document in existence with wording that sets some boundaries on your aspirations.  It’s also possible for an employment document to curb your ability to: 1) own or obtain shares of stock, or; 2) hold an executive position or a directorship, in another company, during your term of employment (this may disallow the formal incorporating of a startup until you have said goodbye to your current position).  You should avoid, in the course of your work for any employer, assuming an outside position or taking on a roll with a startup that can appear to taint your job’s daily decision-making requirements and judgments.

Within the documents you sign for an employer will probably be language requiring you, at the termination of your employment, to relinquish any confidential information that you needed or accumulated in the performance of your job, along with any physical property belonging to the company that you find in your care.  Distancing yourself (politely if possible) from your ex-employer at this point is normally in your best interest – this doesn’t entail having a hostile relationship with that company, simply doing your utmost to eradicate any link between you and it.  This advisement can encompass the most seemingly-benign employer-related email that was sent, say, to a private email address, or the blueprint of an invention, or the design specs related to something that you once worked on (a souvenir of your production at a place is not a real good idea).  Quite often, when someone ends up keeping material pertinent to a past employment, it’s completely accidental, an unintentional oversight.  Unfortunately, an oversight, with or without bad intentions, isn’t a viable defense if you’re facing some sort of legal action over it (lawsuits can happen as a result this, and a whole lot less).  It isn’t even a good idea to preserve the company email addresses of your most-valued former co-workers (I’ve seen this become an issue and it grew surprisingly ugly between the company involved in the dispute and its ex-employee).  Ask these valued persons from the old place for their personal email addresses and communicate with them that way.  And please also avoid putting anything regarding your former employer, positive or negative, bad or good, on social media (any platform), if you’re humanly able – if you are bound and determined to do it, to share information about your one-time employer (especially if it’s going to be something negative), do it the old-school way and use your gmail account (so that it isn’t potentially exposed to an entire universe – if you’re close to somebody from the prior job, and this somebody has a company-issued phone from your one-time employer, and it happens to be their one and only phone, then it’s kind of like being in the middle of the ocean without a boat, you’re stuck with it.

If you’re going to found a startup and you need to resign from a current employer to do so, it tends to help if you’ve given it some forethought.  This includes (a point that we’ve made in prior articles) avoiding the use of a current employer’s resources or your formal working hours for the advancement or furtherance of your startup and its interests.  It’s not worth risking your loss of rights to an invention, or the forfeiture of any monetary disbursements it may otherwise bring you (it’s a possibility, if there’s an Assignment of Invention Agreement in place or some other similar provision within the panoply of documents you signed for this employer – and later waved off or ignored).  You should always steer away, while you remain with an employer, from pursuing its clients, or making deals with its vendors on behalf of your startup, or certainly attempting to skirt a non-solicit clause by offering one or another of your co-workers an enticing package or inside deal to quit the current company and join you (if somebody does quit to join your startup, it’d better be done covertly because the past employer is likely to be paying attention – and if it’s not, if you bring in one of the old employer’s people on a covert basis, it’s likely to reach the ears of said employer eventually (especially if you find yourselves based in the same geographical area).

It’s not all bad news.  Some actions are allowable when it comes to your preparation to resign, if they are performed on your own time.  If there is no stipulation against working on outside projects while in your current employ, if this isn’t part of any of the documents you signed in your tenure, you have every right to seek out would-be investors for your startup, even before you have left your current position (provided again, that all of these efforts are done on your own time), but any presentation to possible future investors should be more speculative than specific – you should not discuss noteworthy intellectual property that may have been created or which you developed (on your own time presumably) while with your current employer – you do not want this information leaking back to that entity if for no other reason that it generally makes you look bad.  During your presentation, should one of the would-be investors ask about intellectual property related to the proposed startup (it’s a viable subject for any potential investor to broach), you will have to determine the amount of probity to use in your response.  This can be particularly true if you hold a position of authority – a key management or executive office within a company for instance – even without signed documents to the effect, there may be an implied allegiance, legally defensible, interpreted as extant by the court, to that entity when it comes to the attempted direct competition from a startup (or any other effort that appears to undercut the employer’s business interests in the period leading to the formation of your startup).

Depending on your position, the tenor of your departure, and the predisposition of the employer, you may find yourself confronting an exit interview.  It isn’t unusual for the documents you sign when your employment commences to contain language that makes this a part of your departure.  One of the things that you can expect to come up in an exit interview is your reason(s) for leaving, your future plans.  If these future plans entail founding a startup, you are best served being straightforward about that in the interview process – this is true even should you intend to become your employer’s direct competitor.  Now it’s unlikely that there are any provisions in existence to make this courtesy mandatory, but you should know that any falsification on your part can be fodder for your opponents in resultant legal action – to say nothing of the fact that, anytime a mistruth is revealed, it leaves you looking less than stellar.  If you can, leave with your reputation intact.  It takes time (and effort) to rehabilitate this if it takes a hit; for this reason, you should keep it as untarnished as possible from your first job to your retirement party – and this can begin with candidness to an employer about your exit plans.  If you take nothing else from this article, then take this: being part of a startup that fails should never doom an entrepreneur; being viewed as somebody who is untrustworthy and dishonest sure as hell will.

Questions can be daunting about leaving a former employer (especially if it’s in order to form a startup), how to do so and what loyalties you owe to the entity you’re telling goodbye.  There’s nothing wrong with hiring a startup attorney to get clarification when necessary.  If this prevents you from breaking an agreement or violating a provision in a document, or ending up – yourself or your startup or both – as the plaintiff in a lawsuit, you should take it as money well spent.

Ready to create your documents?