What’s Up Wednesday 9/25/19

STARTUP RULE NUMBER ONE: KNOW YOUR PAST AGREEMENTS INTIMATELY

If you are on the precipice of founding a startup, if it has entered your thoughts even casually to be that serious entrepreneur, as your journey gets underway, here are a few things to consider relative to your work history:

Most of the time – not always (in the event of a recession, persons laid off frequently take this plunge) – the formation of a startup entails a departure from the prospective entrepreneur’s current job (the idea is to devote as much of your time as possible to the startup, to a point of obsession?  That may happen, you may find yourself there).  Leaving a current employer is often not as simple as saying goodbye and walking through the exit door, be it to praises, curses, or singular indifference (myself, at various junctures I’ve witnessed each of the three).

You absolutely must (especially for those working in technology fields but it can apply to anyone) be familiar with every confidentiality or severance document that you signed at the behest of your current employer (or it may pertain to documents that were signed for a current and past employers), know intimately what restrictions those signed documents endeavor to place on you as you move forward (one thing you don’t want your startup to be involved in is a lawsuit, especially one involving a copyright or patent – this is an excellent way to kill your startup, regardless what stage it’s in).  Here are some of the documents in question (to be safe you should include in your examination any document you know your employer has in its possession that contains your signature): Conflict of Interest Agreement, Employee Offer Letter, any general employment agreement, Stock Option Agreement, any separation or severance policy, Assignment of Inventions Agreement (this is a big one for future entrepreneurs), as well as any conflict of interest policy that you autographed (don’t believe your autograph is worth anything?  In some situations, on the wrong document, it can wind up being worth millions to you).  It may be that certain terms within those signed documents are unenforceable (stipulations change from state to state, and it isn’t unusual for employers to include provisions in agreements that they realize full well aren’t legally enforceable).  Understand that the violation of any signed agreement can land you and/or your startup in a lawsuit (we can’t stress enough that this is a massive drain of your precious time and, if your startup is typical, limited resources).  So be careful that any venture respects the constraints placed on you by all documents in your employment history.  If you have questions in this regard, it is prudent to consult a startup attorney.  Seeing an attorney may seem like an extravagance or a waste of time, but it can pay off if it prevents you from making a critical mistake.

If you are working in the technology sector, you have undoubtedly signed at least one confidentiality document (keep in mind too that even if there isn’t one in place, when there’s a doubt state courts will tend to side with an employer if it comes to the question of appropriated trade secrets or proprietary information).  It’s always better if a startup isn’t in direct (or prospective direct) competition with a former employer – but we know that things in the real world don’t always fit together perfectly.  If you, the founder, will be cultivating the same clients, customers, or money-making space, as an ex-employer (even if it’s not your most recent position) it is incumbent upon you to be as clean, especially with respect to the technology you and your startup are using, as possible.  Be assured, former employers and anybody else who has a vested interest business will be scrutinizing you and your startup with a jeweler’s lens.

As a worker in the technology, you may also have an Assignment of Invention Agreement in place that prevents you from financially profiting from the ideas you developed for another enterprise as its employee.  This agreement applies, as its name states, to physical inventions you may have evolved or built – it also can and frequently does cover designs, concepts, blueprints or schematics, improvements or changes, innovations, sketches, drafts, plans, diagrams, trademarks, copyright, patents and pending patents, job-related works of authorship, can sometimes even cover basic ideas that were generated or proposed by you while in somebody’s employ (attempting to co-opt simple ideas requires more difficult proof by an ex-employer, but if there is a significant amount of money involved, be assured that you’ll be arguing the issue in court).  Some assignment agreements will even specify that inventions created by an employee in off-duty hours are property of the company – generally not an enforceable claim unless it involves technology or some other output that is earmarked to compete directly with an employer’s.  Be absolutely metaphysically certain (in other words be damn sure) that if you are working on something, be it an invention or other creative output, of your own on your own time while you’re employed elsewhere, that in the process of so doing you do not (ever) make use of your employer’s tools, equipment, buildings or other physical locations, or certainly any confidential or proprietary information (anything at all corporeal or informational that happens to be owned by an employer).  If you cross this line, your ex-employer has an opening to launch some kind of claim on your output.  It can end up being, in drastic circumstances, a total claim (meaning that the former employer ends up with everything, all profits, all successes, all efforts).  This has happened.  Entrepreneurs have lost fortunes by running afoul of these very simple but easy-to-violate precautions.  If you’ve got a dynamite idea, you may want to keep records documenting that the work done on your own behalf is (and always has been) separate from all work executed on behalf of an employer, something that may sound like a royal pain, an exercise steeped in tedium, that or a lot of valuable time that could easily be devoted to something more pressing or profitable, but such concrete documentation can be worth enough platinum to fill the back end of an armored car – believe us.

Be sure that you know what agreements you signed for your relevant past employers, and understand what specific provisions those documents contain – before you start.  Don’t wait until it’s too late to give these notions some thought.  Remember that employers take these agreements seriously.  This absolutely means you should too.

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