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Tech Startups: Key Legal Issues to Consider Before Leaving Your Job

In my role as an attorney representing emerging growth technology companies, I spend a lot of time talking to and working with entrepreneurs as they prepare to start new companies. This is the first in a series of five posts that I will write exploring some of the legal and practical business issues that aspiring entrepreneurs need to understand as they begin this process.  

This first post will deal with issues that you should consider before leaving your current job. Most likely you and your co-founders have a day job (maybe even one at an established technology company), and are toiling away on your “stealth mode” startup in your free time. Below are some of the key legal issues that you should be thinking about.

Confidentiality and Invention Assignment Agreements

If you work for a technology company, you will likely have entered into an agreement which is intended to capture and assign any proprietary information that you learned or developed during the course of your employment. To help ensure that the intellectual property you are creating for your new venture is not inadvertently picked up by the terms of such an agreement, be sure to work on your new venture (1) outside of the office, (2) during off-hours and (3) on your own computer. Most states offer protection for intellectual property that you create on your own time and with your own resources.

Noncompetition Agreements

Did you or your co-founders sign a non-competition agreement with your current employer? Most states will enforce these types of agreements and prohibit you from entering into competitive ventures – notably, California does not enforce these types of agreements except in certain circumstances, such as in connection with the sale of your business. Would your new venture be deemed to be competitive with your employer’s business?

Nonsolicitation Agreements

Did you or your co-founders sign a nonsolicitation agreement with your current employer? A nonsolicitation agreement protects your current employer by prohibiting you from cherry picking the best and brightest of your co-workers and hiring them to work with you at your new startup. Just because you may have signed such an agreement doesn’t mean that there is no way to work with your co-workers again, however, it should set off some alarm bells for you that you may be headed into some dangerous waters.

Depending upon your employer’s internal policies and your leverage within the organization, the terms of each of these agreements may be negotiable. If you have concerns about the terms, geographic scope or duration of these agreements, you should consult with your attorney as each of these agreements will be scrutinized by your new company’s future investors – or more accurately, your future investors’ lawyers. 

Finally, keep in mind that even though you may not have entered into a noncompetition agreement or nonsolicitation agreement at the outset of your employment, they may be required in order to receive your “richly deserved” severance payments in the event that you are laid off, which is all too real a possibility in today’s economic climate.

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