smallbusiness.co.uk: Helping your business think big

It is tempting to set up as a sole trader while remaining in full-time employment, but it is wise to find out where you stand legally first.

You will need to refer to your contract of employment with your current employer. You may find you are subject to a Restrictive Covenant which would prevent you from setting up your business while continuing to work for your current employer. In fact, if this is the case, your employer may be able to claim damages if they show that they suffered a financial detriment as a result of your breach.

Even if there isn’t a written Restrictive Covenant in the contract there is still an implied term of mutual trust and confidence which although less straightforward than a written clause is often relied on by the injured party. If your plans breach the mutual trust and confidence between employer and employee your employer could treat your employment as terminated without having to compensate you and that’s a risk you take if you go ahead as planned.

Using a common sense approach, you can probably work out whether running your own business would undermine the relationship. For example, if your new business were in direct competition with your current employers, this would clearly strike at the heart of the employment contract.

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