Mistake #4: Violating Past Employment Agreements

• 1.13.2015
• Mick Bain

This is the fourth in a series of posts on common costly legal mistakes made by founders of early-stage companies. Read Mistake #1, Mistake #2 and Mistake #3.

Some founders will, in their haste to form a company, forget that they signed an agreement not to compete with a former employer for a period of time following employment. Others may not even realize they agreed to such terms, which might have been included in an employment agreement. Lastly, founders might believe that because they offered a particular business opportunity to an employer who rejected the idea, they are now free to operate a company based on that rejected idea. Again—not true!

In most states except, for example, employee-friendly California, non-competes are enforceable. So be careful. Wait until the non-compete period is over, or go seek a waiver (believe it or not, they are often given).

Entrepreneurs often seek to hire people they know and trust to help build their new companies. Often these are friends and former colleagues. Be careful not to violate non-solicitation or non-hire agreements with former employers when hiring employees.

To avoid these problems, always review and understand agreements executed with former employers.

Stay tuned for the final mistake!