Say you’re planning to quit your job and start your own company, and you want to take your clients along. How do you do this?
There are plenty of legal barriers to negotiate if you want to quit your job and take your clients with you — without getting sued. To get the right advice, I interviewed Robert P. Gates, a San Francisco-based Business and Real Estate Attorney at Erskine & Tulley, LLC. If you’re headed down this road, you may also want to consult with an Intellectual Property Attorney and an Employment Law Attorney.
ISSB: What is a non-compete contract and how does it limit what you can do?
Gates: Non-compete contracts can deal with at least three areas of business:
1) Proprietary knowledge, intellectual property, and trade secrets.
2) Solicitation of customers.
3) Re-employment in the same industry.
Is there a law about this in the California Business & Professionals Code?
Statute 16600 prohibits restricting employment, unless in connection with the sale of a business: Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
Certainly, solicitation of current customers can be restricted while one is employed; however, it is more difficult to restrict this upon termination of employment unless it is established to involve “trade secrets.” The employee can take the position that customers are “public knowledge” or things he brought to the employment to begin with.
Similarly, intellectual property and trade secrets need to be carefully handled in a written agreement to enforce any post-employment restriction and ownership, although some restrictions can be enforced without a written agreement by arguing an implied duty of loyalty.
What is a typical scenario with a non-compete: six months, one year, or longer?
Assuming the agreement meets tests for enforceability, a term of six months or one year is customary. It can be longer or permanent if it involves trade secrets.
If you don’t currently have a non-compete clause in your employment contract, how do you approach your clients to come with you?
The first matter to document is whether the clients were part of the employee’s knowledge and property before he/she came to work at the company. These are not restricted. If the clients were obtained during employment, there should be no solicitation while still employed.
What if your no longer employed at your past company?
Post-employment, the employee can contact the client and give the client the choice of whether or not to go with the employee. If the client freely chooses to go with the employee, the employer cannot stop it. However there can be a matter of a factual question of the status of the client’s relationship to the company and whether the employee engaged in improper solicitation.
For more advice, contact Robert P. Gates at Erskine & Tully.