STARTING YOUR OWN BUSINESS: RESTRAINTS OF TRADE AND AVOIDING LITIGATION WITH YOUR EX-EMPLOYER
This article is intended for any aspiring entrepreneur who plan to leave their current employment to compete with their employer.
We have seen this movie a thousand times over. An entrepreneurial employee resigns and starts his own business in competition with his ex-employer. The next thing you know, the ex-employer is in our office seeking advice on how to prevent the ex-employee from competing with him. Or, the ex-employee consults us after having been sued for unlawful competition, copyright infringement, breach of confidentiality, use or disclosure of confidential information, and/or breach of a restraint of trade. Bredenkamp Intellectual Property Attorneys have been on both sides of the coin, many times over.
Some of our clients are sceptical at first, but a carefully drafted restraint of trade is enforceable. Our numerous successes (for employers) are proof thereof. The trick is to establish what the employer’s protectable interests are and to restrain the employee from exploiting such protectable interests, for a reasonable period after he resigns. (More about the specifics of enforceable restraints in a future article).
The Importance of a Carefully Drafted Restraint of Trade
A carefully drafted restraint of trade can put an end to the prospective entrepreneur’s dreams – or at least hamper their dreams for a while. The best time for considering the implications of a restraint of trade is before signing the contract of employment. Of course, this does not always happen. Employees are eager to start their new job and easily sign almost everything that is put in front of them, without proper consideration. If you have signed a restraint of trade, and before you resign, you should seek our advice not only on whether the restraint is enforceable but also on what the cost implications might be should your ex-employer attempt to enforce the restraint of trade through litigation. Even if you believe that the restraint is not enforceable, your ex-employer may still litigate knowing that opposition to such litigation may be prohibitively expensive to you. In addition, there may be a way to compete with your ex-employer without breaching your restraint. Interim measures for the duration of the restraint might be an option.
Taking Knowledge with You
Let’s assume for the moment, that there is no restraint, that it is very obviously unenforceable, and your ex-employer will not litigate in an attempt to enforce it, or that you can work around the restraint until its time runs out. Then, as a rule, when you resign, you can take with you what is in your head. You can, the very next day, sit and write down all knowledge gained during your employment and start using it.
You can still not disclose any confidential information. Note that confidential information must be confidential, not because your ex-employer says it is but because it is important enough to not have it disclosed to the public i.e., it is factually confidential in the hands of your ex-employer.
In our experience, ex-employers are successful in obtaining interdicts to prevent unlawful competition in cases where employees took and used copies (including emailed or other electronic copies) of their copyrighted material (technical drawings, standard operating procedures, client lists etc.) and confidential information.
Seek Advice Before Resigning
The best course of action is to seek advice before you resign to start your own business in competition with your ex-employer. Bredenkamp Attorneys can assist to put a process in place to limit or negate the risks. You will spend much less money on lawyers if you spend it to gain knowledge of the risks before you run into difficulties.
