A colleague and I want to leave our employer and start up a competing business. Can our employer prevent this?
It is difficult for your employer to put a complete stop to you competing depending on the facts. He can certainly put up a few road blocks to hinder you along the way, however.
Much of what your employer can and cannot do will depend upon what your contract of employment says and how much your employer is prepared to spend in legal costs to try to stop you. You should first look for any post-termination restrictions in your employment contracts. These may prevent you from being involved in a competing business or poaching (or even dealing with) any employees, suppliers or customers of your current employer.
The upside for you is that these clauses will only be enforceable insofar as they reasonably protect your employer’s business. If your new venture is dissimilar enough from the old one, or if you are competing in a geography that your old employer was not, you should be relatively safe.
The restrictions must also be for a finite period and tailored to the role you currently perform. If you are the CFO, for example, a restriction of say 12 months will likely be justifiable, but if you are relatively junior, the restrictions should be no longer than a few months or absent completely. Aside from these restrictions, your current employer may still have claims against you if you misuse any confidential information (such as business plans, customer lists, etc.) or any intellectual property (inventions, trademarks, copyrighted materials, etc.) of his to compete against them. If you are a director you will also be subject to implied duties of trust more onerous than those of a standard employee.
If your employer wants to enforce any of these rights, he will have to go to court for damages and possibly apply for an injunction forcing you to comply with the post-termination restrictions and/or forcing you to stop using confidential information and/or intellectual property.
These rights are expensive to enforce so it may not be worth your current employer’s time and money to take legal action against you. Nonetheless, some employers will be extremely protective over their existing client base and confidential information and may want to set an example to other employees of the business and consequently take a very bullish approach.
You should also be aware that if your employer wins any case against you, you will likely be liable to pay a large part of your employer’s legal costs as well as your own. Overall, therefore, the lesson could be a very expensive one.
See also: Setting up a mail order business