Starting a Side Business? Here are 5 Steps to Avoid Getting Fired
Take these steps to ensure your side business won't land you in legal trouble.
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If you're thinking of starting a side business, it's your duty to make sure you'll be legally in the clear.
Depending upon your employer's point of view and the contracts you signed when you started your job, operating a side business is often deemed gray area at best.
Playing it safe all starts with making it abundantly clear that your side business idea isn't a conflict of interest or competitor to the company you work at. You'll need to carefully navigate your employment contracts, decide if you should tell your boss about your side business, and much more.
Here are my ten steps to avoid getting fired while starting a side business.
1. Know your company policy.
Many companies have formal policies about employees operating a side business. If you didn't ask, or weren't briefed on this during your interview and onboarding process, then it's worth giving all of your employment contracts a thorough read.
If you're still unsure, or there's no clear mention on the subject, it is absolutely worth asking someone who'd definitively know the answer to this within your company. There's no harm in asking.
In general, most companies don't explicitly ban employees from working for others, or operating a side business. However, in exchange for paying you for your time, they will expect to be your first priority if there's any conflict of priorities.
Related: 5 Tips to Chase Your Entrepreneurial Pursuit While Working a Full-Time Job
2. Understand the agreements you've signed.
When you started your job, you likely signed one, or all of the following agreements:
Non-Compete Clause (often within the Non-Disclosure Agreement)
Examine each of them very carefully, and if there's anything you're unsure about, it's worth the small investment of having an attorney go over them with you for 15-30 minutes. The future success of your side business could depend upon navigating these agreements correctly.
Many companies will insist that employees sign some form of non-compete clause. The most common application of a non-compete clause is designed to ensure that you won't start a competing business while you're employed with the company, or within a predetermined amount of time after your employment ends (often 2 years).
However, in the US, many states have complicated restrictions on the enforceability of non-compete clauses, and in California and Hawaii, they are deemed completely unenforceable.
Related: Employment Contract in the Small Business Encyclopedia
3. Don't use or disclose proprietary information.
Without exception, one thing you absolutely cannot do when starting a side business is steal, use, or share any of your employer's proprietary intellectual property.
There have been numerous court cases over the years, involving former employers seeking substantial damages (and more commonly cease and desist orders) where there has been evidence of intellectual property theft.
To avoid potential mayhem, you need to very carefully ensure that you're not accidentally using any of your employer's proprietary resources and information. This includes avoiding any patented processes, utilizing trade secrets, and making sure that your ideas are very well-documented and transparent.
4. Don't poach former co-workers.
You spend so many hours with your co-workers, and built such strong relationships with former colleagues, that it can seem like a natural fit to start working together on a side business.
While my official answer to starting a business with your friends or co-workers is it depends, you must avoid poaching (or inviting) employees from a previous employer, in order to bring them over to your company.
There have been many costly legal battles because entrepreneurs have encouraged fellow (and former) co-workers to jump ship, in order to work for their businesses. This is more common in the startup world, where huge venture funding rounds can catapult overnight what started as a side business, into a rapidly growing enterprise.
5. Don't use company time on your side business.
While this one seems like a no-brainer, it's without a doubt one of the most commonly violated principles of launching a side business.
It often arises out of not properly managing your time, feeling that you're not making enough progress on your business, and having a high level of dissatisfaction with your current job. Exercise extreme discipline when it comes to this matter.
Using the time that you're compensated for, on your own personal business, will do you no favors. It's unethical, unprofessional, and will likely breach the terms of your employment contract. What's more is that it often contributes to a decline in performance in the workplace, which can raise negative concerns about your ability to be an effective employee.
6. Don't use company resources on your side business.
Just like you should not use company time to work on your own business, it's highly unethical to take or use other resources such as notebooks, technology, and tools of your craft that belong to your employer.
For example, if you're planning on branching out to start your own building construction company, you should not be using tools and other resources that have been paid for by your current employer. Even if they're tools you regularly use at work, that doesn't give you a pass to use them on your personal business.
In fact, you need to do the exact opposite. I recommend purchasing, renting, or borrowing everything you need to start your side business, and documenting the fact that you did, indeed source those items elsewhere if there's any crossover in the tools you use at your day job. This can be as simple as holding onto receipts and getting email documentation of borrowing items from friends.
7. Don't use your work computer.
If you have a work computer from your company, it's obviously their property. Therefore, you should not use it to work on your side business, whether that's in the office, or at home.
Even if your employer is comfortable with you taking your work computer home, using it to read personal emails, and doing with it as you please on your own time, utilizing it for your personal business is both unethical and leaves you exposed to potential breach of your employment contract. If you need a computer for your business, you'll have to go out and buy or borrow one. It's as simple as that.
8. Don't use company-purchased online tools and apps.
Similarly, just because your employer has paid for incredibly useful software and apps, it doesn't mean that you have the right to use them for your personal business. Again, this is likely a breach of your employment contract.
There are an incredible amount of free and inexpensive online tools that'll help you start an efficient side business on a tight budget, you just need to know where to look.
9. Don't build a better version of your employer's company.
Most companies are particularly keen on making an example of current (and former) employees who set up competing businesses, especially if there's any suspicion of poaching previous clients.
Aside from being a clear violation of your employment contract, and likely one of the limited use cases for a non-compete being held up in a court of law, if you're creating a business that competes directly with your employer, that's going to make your life a living hell.
If you manage to avoid a lawsuit, your employment will still most certainly be terminated upon your boss discovering your side operation.
10. Disclosing your plans can actually help.
It's actually in your favor (most of the time) to be completely transparent about your plans to start your own side business, especially when your project is clearly not in direct competition with your employer.
Making the decision to tell your employer about a side business needs to be done either before signing your employment contract, so that you enter to your relationship with mutual agreement, or after fully understanding your company's policy and your employment agreements on operating a side business.
At his San Francisco-based company VoiceKick App, CEO Larry Cornett, shared with me, "Here, you sign a non-compete agreement and you are supposed to run side projects by your corporate legal rep to make sure you aren't violating the agreement. If there is even a possibility for a conflict of interest, you can be terminated."
In short, his opinion is that if you're not breaking any of your employment agreements, you have nothing to fear.
For much more on how to navigate these murky waters, check out my course, The Launch While Working Formula.