Departing Employees’ Rights and Obligations

Almost every employer and business owner was once an employee. For some, the transition was abrupt or involuntary. Others planned the exit carefully. For those who are leaving an employer to start a new business, a key aspect of your exit strategy is your obligations to your current employer.

Whether it is out of convenience, or simply falls off the radar in all the excitement, many people forget that after quitting their job they may have ongoing obligations to their current employer. This is especially important when starting a business that might compete with the former employer. If those obligations are overlooked and breached, it can cost you both money and time.

Employers today are increasingly bringing lawsuits against former employees under a collection of headings that the legal community have dubbed the “economic loss torts”. These run the gamut from breach of ongoing obligations of confidentiality, such as stolen client lists, to unlawful interference with economic interests and conspiracy to induce breach of contract.

If your main strategy for building your new business is to bring existing clients with you, you may need to rethink your plan. While a business cannot force a client to remain loyal, copying a client list or actively marketing to your former employer’s existing clients, even just from memory, can be a breach of confidentiality and may be actionable.

Also, while it might be tempting to take a few familiar faces along with you as you start your new business, it may appear as though you are raiding employees. Such actions may bring about consequences not only to you and your new business, but also to the individual employees if they have breached their own employment contracts to do so. If employment contracts have been violated by such moves, your previous employer may have an action against you and your business for inducing or conspiring to breach the contract.

Another consideration is whether your current employment agreement has a non-compete clause, or there is a separate non-competition agreement. If so, you need to make sure you understand the terms and restrictions before you find yourself in the midst of a legal battle.

Money damages may not be the only relief available to your previous employer. For many of these economic loss torts it is open to your previous employer to request an injunction, which is an order of the court ordering something to be done or stopped. I mentioned earlier the possibility of drastic effects on your new business and it can’t get much more serious than a court order stopping your business from operating. An injunction will be a major setback to getting your business up and running in the best of circumstances. At worst, it may cause the ultimate failure of your new business venture.

To avoid the stress and economic drain of having your previous employer take legal action against you, take the time to properly plan your exit strategy, keeping in mind your continuing obligations to your current employer.

Review your current employment contract and pay attention to confidentiality and non-compete clauses. Such clauses almost certainly carry with them continuing obligations. If you are unsure, review your current contract and your business plans with a lawyer. It will cost you some legal fees that you might not want to spend when faced with the start up costs of your new business, but it may well save you time and significantly more money down the road.

Don’t automatically discard the option of being up front with your employer and letting them know of your plans. This has to be carefully handled, of course, and it can be difficult to do. The rewards, on the other hand, are that you can eliminate many of the risks, and perhaps even continue a relationship with your former employer that will benefit both businesses.

And if you are a business owner, keep these points in mind when planning to retain your key personnel. Non-competition, confidentiality and employment contracts are an important part of this strategy. Also recognize that it is impossible to tie employees to your business if they want out. It is far better to take a holistic approach to keep them satisfied, and if they do want to exercise their entrepreneurial ambitions, consider options that will create business opportunities from them in the future.