If you want to start a business similar to one you’ve recently worked for, you may run into problems with a non-competition agreement. Many businesses require their employees to sign these, which prevent the employee from engaging in competitive enterprise during and for a period after their employment. These agreements typically include provisions requiring confidentiality, protection of trade secrets, and non-interference with the employer’s ongoing business.
Though Wisconsin courts have viewed these agreements unfavorably, they will be enforced if they are necessary for the employer's protection and require only reasonable restriction of the employee’s conduct. These restrictions must not be overbroad in terms of time or location and must not prevent the employee from earning a living. Also, they must be supported by consideration- meaning that the employer must give something in return for the employee’s promise.
Most companies have retained good counsel to draft these agreements so that they are enforceable. Therefore, it is important that you review these agreements with counsel to determine their enforceability and applicability to you.
If you move forward with your business in a way that breaches these agreements, you could be looking at a nasty set of damages, such as an injunction preventing you from developing your new business and liability for any losses your former employer can attribute to your actions (including costs of hiring, lost profits and anything else they can make a case for) including their attorneys’ fees, which can quickly run over $10,000.
New businesses are often started on a shoestring budget, with partners worrying about their living expenses in addition to their business costs. A “damn the torpedoes” attitude towards restrictive covenants that you’ve signed might let you build your business how you want to in the short run. However, no matter how big you can grow it, a business built on shaky foundations can crumble, leaving you with a heavy debt load and stinging regret. A small consolation: at least you’ll know to do it right next time.
This article first printed in the Winter 2010 Madison Business Law Quarterly "Think of Everything, Act Accordingly."
No comments:
Post a Comment