Starting a Business While Employed in a Related Industry

Starting a business while being employed, especially in the same or a closely related industry, presents a legal minefield which requires careful navigation to avoid potential litigation. The law delineates clear boundaries regarding competitive practices, particularly emphasising the obligations of employees towards their current employers.

A key principle underpinning these legal norms is the prohibition against operating a competing business while still employed by another, especially if one holds a significant or influential position within the company. This foundational tenet ensures the protection of trade secrets and proprietary information, which are vital assets for any enterprise.

Incorporating a new business while still under the employ of a potential competitor not only risks legal action from the current employer but also jeopardises the ethical and professional reputation of the entrepreneur. The advised course of action for those contemplating starting a new venture is to approach their current employer transparently – either to tender their resignation or to discuss their entrepreneurial ambitions openly. Surprisingly, this approach can lead to an amicable separation and may even open opportunities for investment or collaboration from the current employer.

However, the obligations towards the former employer do not cease with resignation or termination of employment. The legal principle of inevitable disclosure posits that if an individual has had access to trade secrets or sensitive information in their previous role, and their new role is sufficiently analogous, it becomes a reasonable assumption that such confidential information might be inadvertently utilised. Courts have, in some instances, upheld this doctrine, imposing injunctions that temporarily bar the individual from working in the new role to prevent any potential misuse of trade secrets.

Furthermore, the recruitment of employees from a potential competitor or the same industry necessitates a thorough vetting process to ensure compliance with legal obligations. It is imperative to ascertain whether potential hires are bound by non-compete clauses or have signed agreements that assign their inventions to their current or previous employers. Such legal encumbrances could significantly impact the recruit's ability to contribute to the new venture without infringing on contractual obligations.

Recruits and employers alike should diligently review employment agreements, including non-disclosure agreements, to identify any clauses that might restrict the employee’s ability to engage in subsequent employment or entrepreneurial activities. This includes clauses that might have been overlooked or considered standard at the time of signing. The discovery of a non-compete or invention assignment clause within such agreements necessitates careful legal and strategic consideration to navigate without breaching contractual obligations.

The intersection of employment and entrepreneurship is fraught with legal complexities that demand careful consideration and strategic planning. Entrepreneurs must navigate their responsibilities to their current and former employers with transparency and integrity, ensuring that their actions do not infringe on trade secrets or contractual obligations. Legal advice should be sought to navigate these waters successfully, ensuring that the transition from employee to entrepreneur is both legally compliant and ethically sound, laying a solid foundation for the new venture's future growth and success.

Startup Details

Startup Details


The Business Mission

The Business Mission is a business strategy consultancy, which guides and helps business owners implement strong foundations and structure within their business period.

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    Nancy Steidl
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