So you want to start a company?
The great American dream can be yours, right?
What kind of company? What kind of clients? What kind of services? Do you hope to stay in the same business you are in now? Serve the same clients / customers? Use your years of experience to start a better business?
If your plan is to stay in the same business you are in now, and serve the same customers you serve now, and YOU ARE NOT A LAWYER — you may be violating Virginia law by starting your own company.
Wait – let’s address the lawyer comment first. Non-compete agreements are unethical in the practice of law. Or so the American Bar Association has implied. So lawyers don’t have them. We can take clients, customers, employees and open new offices. Happens all the time. No one cares. And typically, everyone is just fine at the end of the day with clients getting to pick where their business goes.
But ironically, non-compete agreements exist in almost every other industry. Sales. Medicine. Personal Service. Retail. Manufacturing. Development. You name it. And you are bound by contractual rules that prohibit you from serving clients, customers, etc. in the area you live, in the business you know.
Here are some simple rules you should know before you try to start your own business.
1. Every state law is different. So you need to read your contract and see what state law applies. About 90% of all contracts provide for some kind of choice of law – or state what State law applies.
2. Plan ahead. It is always better to know your options and obligations before you start that new company. Afterall, what happens if you start the company and get sued?
3. Your contract is enforceable until a judge says otherwise. And getting your contract before a judge is expensive. So you need to operate under the assumption its reasonable and binding.
4. Have a lawyer that actually knows your state law on non-competes (and not your cousin’s boyfriend who is in lawschool) review your contract.
5. Life isn’t always fair. Sometimes you may be bound by a contract, or silly rules that don’t make sense. So do yourself a favor by knowing what the rules / laws are before you leave your job and start a new company.
Just this week I was speaking to a Virginia resident who wanted to open his own business.
He has the time. The money. The talent. But he he can’t open the business.
He can’t because he signed a contract that says for a period of time he will not open a business, or work for a competitor within 15 miles of his current office.
He could (a) create jobs; (b) feed his family; (c) serve the public and likely do all of this without (a) harming his old employer; (b) using their secret or trade secret information.
So really, isn’t capitalism in favor of this kind of growth? Isn’t our unsteady economy reliant on it? According to the Washington Post
“Slowly but surely, small businesses are starting to accelerate their pace of hiring, helping drive down the overall unemployment rate to a four-year low last month.
Small business owners increased employment by an average of 0.14 workers per company in April, according to the latest report from the National Federation of Independent Business. That’s still slow growth by historic standards, but it marks the fifth consecutive month of gains after a topsy turvy year in 2012.”
So again, I ask you is it good, bad, right or wrong that he can’t open this business? Who benefits from his bargain? Only his old employer. Not his county. Not the citizens. Not the economy.
But what if he is fired from his old job, and STILL PROHIBITED from starting this new business? Does that seem right? Legal? Ethical?
Sadly, under current Virginia law, the fact you are let go has no bearing on whether your non-competition or non-solicitation is valid and enforceable when you leave. You can be fired, have the time and talent to open a new business, hire employees and improve lives, and you may not be able to.
How is that for economic recovery?
Topic: Top 10 Employee Mistakes That Lead to Litigation
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Topic: Should You Sign a Non-Compete Agreement?
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