Starting a Business and Have a “Junk” Non-Compete or No Non-Compete With Former Employer? That’s Good, But No Guarantee You’re in the Clear

Some Wisconsin workers consider starting their own business, and make plans for the business before leaving their current employer.  Some such workers have non-compete agreements with their existing employers.  Some don’t.  In either event, you should not assume you are in the clear and will not be sued by the former employer if they think your new business is competitive.  First consider having an attorney review your situation (no, it doesn’t have to be me).  Read more below to learn why.

If You Have a Non-Compete Agreement, Your Assumptions About it May Be Wrong 

If you do have a non-compete agreement and have not had an attorney review it, you may be making some risky assumptions.  For example, it is common for me to hear a worker say things like this: “I have a non-compete contract, but I think it’s badly-written and I heard Wisconsin Courts don’t like non-competes so this wouldn’t stand up in Court.”

There may be grains of truth to such assumptions in a general sense or as applied to others, but such assumptions may be very wrong as applied to your particular situation.  For example, as a general matter the State of Wisconsin (in its original statutory law) disfavors non-compete agreements, but in recent years the Wisconsin Supreme Court has made some decisions that are favorable for employers and make more non-compete provisions more likely to be enforceable.  Further, any employer can sue any former worker, strong claims or not.  If you’re sued, then even if you win you lose (to some extent), as you have to pay for a legal defense.  Some employers have a track-record of many lawsuits. If a worker has a non-compete agreement that I agree is a piece of junk but I think the employer is still likely to sue, then I advise the worker how to best avoid a lawsuit in his or her situation.

If You Do Not Have a Non-Compete Agreement, That’s Good, But That’s No Guarantee

If you do not have a non-compete agreement, you should know that potential legal claims may still exist (outside of contract law) that employers sometimes rely on to sue former employees who the employers regard to have competitive businesses.  Examples of such legal claims include, but are not limited to, breach of duty of loyalty, trade secret violations, and tortious interference claims.

The Good News: An Ounce of Prevention Usually Works

The good news is that most workers can plan and operate a business in manners that greatly reduce risk of a lawsuit from their former employers.  In many situations, I have communicated with workers for one to five hours (and at a total expense ranging from about $200 to $1,000), ironed out a game plan to deal with their former employer and/or non-compete contract situation, and I never heard from the vast majority of them again having had any lawsuit or similarly large problem come up.  In other words, an ounce of prevention usually works quite well in these situations.

If a worker contacts me later, after the point of being threatened with legal violations or sued, effective measures can still be taken, e.g. I may file a motion to dismiss their lawsuit at an early stage, etc.  But it’s more difficult (and costly) to work through the (thornier) problems that have developed by the point a dispute has openly developed and/or escalated with the former employer.  Better to evaluate and address a situation earlier.

The Attorney-Checklist for Reviewing Risk

When a worker approaches with a situation like above, i.e. leaving a job to start a new business the former employer may regard as competitive, I review many factors including: (1) the factual details/circumstances the worker reports to me; (2) the language of the non-compete contract (if any); (3) other laws that may apply; (4) how the contract or laws could apply to the specific factual situation; (5) the employer’s litigation history and other risk factors that may indicate the employer is likely to sue.  The worker’s biggest risk factor of all: if the former employer (rightly or wrongly) believes it is likely to have a large financial loss due to the worker’s new business activities.  Former employers which believe they will suffer large financial losses are more likely to closely review any non-compete contract or other laws for legal options, and more likely to pursue whatever options they think may be successful for them.

What to Do?

Consider if the employer (whether you agree or not) will likely regard your new business as competitive or a financial threat.  Then consider if it is worth consulting with an attorney.  If you see value in doing that, then it’s better to do it sooner than later.

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Filed under Employee Info/Tips - Litigation - Mediation, Non-Compete Issues

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