By Bill Wise
Many employees dream of quitting their job and striking out on their own. Engineers and programmers might have a unique invention they want to devote their time to, and service business employees may want to start their own business in the same industry. But before you hand in your resignation, make sure that you are informed about any non-compete or employee invention assignment clauses that you may have agreed to when you signed your employment contract.
Non-Compete clauses are a common sight in most employment contracts. Businesses use non-compete clauses to protect their trade secrets, and to prevent former employees from poaching clients and current staff. Restrictions on non-compete clauses commonly include geographic and time limitations on employees starting a competing business, as well as commitments to not use trade secrets. Prohibitions on the former employee joining a competitor company or individual are also commonplace.
When it comes to the enforcement of non-compete clauses, the rules can vary depending on jurisdiction. Every state has some differences regarding the enforceability of non-competes. Some states lean more towards the employee, while others less so. However, there are some general factors that courts will look to when determining the enforceability of the agreement.
1. Geographic and time limitations need to be reasonable, and courts will often look at the specific context of the industry to determine the reasonableness of the limitations.
2. Courts will consider whether the agreement is protecting a legitimate business interest and whether there was appropriate consideration when the employee agreed to sign the non-compete.
Even in states that generally enforce non-competes, courts tend to be more charitable towards the employee and a clause that fails any one of the above factors could be rendered unenforceable.
Employing fellow employees
A very common provision in non-compete clauses restricts you from persuading or pressuring other employees to leave the business. The exact wording used is typically, “solicit, induce, recruit, or encourage.” While this line might seem overly restrictive, a court in North Carolina has held that the meaning of the phrase is limited to direct attempts at persuading or encouraging other employees to leave. While the North Carolina court is one of the few that focuses on these clauses, it is still important to check your state’s laws before coming to any conclusions about non-solicitation clauses.
Preparation to Compete
What about being able to prepare for your new business while still being employed by a company? Once again, the answer can vary by state, but there are some general guidelines that courts will look to. Any preparation needs to be done on your own time with your own resources. Any employee preparing to strike out on their own needs to make sure they are not using company time, equipment, or other resources when making their preparations, otherwise they risk breaching the non-compete clause of their employment contract. Remember, if there are geographic or time restrictions, you may still need to abide by those clauses.
An employee invention assignment clause is commonly seen in the engineering and tech industries. These clauses could automatically assign the patent rights of an invention you have created to your employer. Invention assignment clauses can be very broad in scope, with employers seemingly able to have claim to ideas you thought up at home, on your own time. The rules on the enforceability of invention assignment clauses varies from state to state, but some states such as California and Delaware have strong limitations on the enforceability of such contracts. In these states, if your invention was made on your own time and with your own resources and didn’t result from any work you did for your employer, the court will generally side with the employee.