Q: I want to start a business that is the same as my
employer's, but I signed a nondisclosure agreement. Is that
going to be a problem? Also, is it OK to contact clients that I
used to service for my former employer?
A: I receive questions like this often, and you're
right to be concerned about stepping on your former employer's
toes, especially if you'll be competing with him.
Nondisclosure Agreements
When you work as either an employee or a contractor, an employer
will often have you sign a confidentiality agreement, also known as
a nondisclosure agreement. A confidentiality agreement is a
contract where one party, in exchange for receiving employment,
agrees to use information in a particular way and not tell others
about it.
Content Continues Below
Confidentiality agreements typically have a clause that defines
what information is confidential, how the information may be used
and how long you must keep the information secret. A typical
employer's confidentiality agreement states that almost all the
information at their business is confidential and must be used only
for the purposes of employment.
If someone who signed a confidentiality agreement with his
former employer starts another business, and his employer alleges
breach of the confidentiality agreement, the burden will be on the
former employee to show that he didn't misuse his former
employer's information. Signing the agreement meant that the
employee agreed that everything the agreement covered was owned and
to be used for the benefit of the employer. Proving that you
didn't use the information you had access to is very
difficult.
Trade Secret Law
Even if you did not sign a confidentiality agreement with your
former employer, you may still be subject, through trade secret
law, to legal restrictions on use of information you were exposed
to.
As defined by the Uniform Trade Secret Act, which is the general
definition adopted under most state and federal laws, a trade
secret is: "Information, including a formula, pattern,
compilation, program, device, method, technique or process that:
(a) derives independent economic value, actual or potentia from not
being generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value from
its disclosure or use; and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its
secrecy."
Often, customer lists, client leads, product specifications,
business plans, market research and a lot of other business
information fall under this definition and are subject to trade
secret protection. If you use such information, a former employer
can allege that you have stolen her trade secrets and sue you for
damages or try to get an injunction to stop your business or
product.
Starting Your Business
If you want to risk starting a business that competes with a former
employer, and there most certainly is risk involved, then there are
some things you can do that may reduce the risk:
- Read what you signed. Read, and/or have an attorney help
you understand, what you signed for your former employer. It may be
drafted so that you can lessen your risk. If it contains a
noncompete clause, then that will increase your risk.
- Start from scratch and document it. If you get sued by a
former employer, you will have to prove that you did not use his
information to start or run your business. Therefore, forget what
you've learned and get the knowledge again. Document all the
steps you take to acquire, compile or research the information you
use for your business, products or services. Keep track of who you
talked to, as well as when, how and what information you
found.
- Get you own customers. Do not, under any circumstances,
directly contact customers (past, present or future) that your
employer had any type of contact or list for. If you are announcing
your new business, make a general business announcement: Run an
advertisement in the local paper or mail a letter to everyone in
your industry or market. Let former customers contact you and, if
they do, document the date and the person making contact. Using
another party's customer list is the prime example of a stolen
trade secret.
Note: The information in this column is provided by the
author, not Entrepreneur.com. All answers are general in nature,
not legal advice and not warranted or guaranteed. Readers are
cautioned not to rely on this information. Because laws change over
time and in different jurisdictions, it is imperative that you
consult an attorney in your area regarding legal matters and an
accountant regarding tax matters.
Judith A. Silver, Esq., is the CEO and founder of Silver Law
Inc., a technology and business law practice, and Coollawyer Inc., a
legal publishing company on the web. Prior to starting her
companies, she served as in-house counsel at Adobe Systems and
Sabre/Travelocity.com. She holds a bachelor's degree cum
laude from Cornell University and her juris doctorate from the
University of California, Hastings College of the Law, in San
Francisco.