Throwing in your job to start your own business always raises a few questions around what you can and can’t take with you from your current role.
It may be tempting to print off your list of contacts and jump on the phone and convince clients to follow you into your new business, but you should think very carefully before doing this, warn the experts. After all, if things don’t go so well out on your own, you may need your old job back.
The letter of the law
What you can or can’t take with you hinges on the employment restraints in place, according to Sydney executive solicitor with DC Strategy Legal, Marwan Kojok. He helps plenty of small businesses navigate their way through the complex issue of setting up on their own, and warns people to proceed with caution.
The first step is to dig out your employment contract, which will detail any non-compete clauses you may have signed, giving you a clear idea of what you can and can’t do upon resigning from your current role.
“If you haven’t signed an employment contract with a non-compete clause,” says Kojok, “you definitely have some flexibility in what you’re able to do when you set up on your own.”
But whether you’ve signed an employment contract or not, taking what is deemed to be intellectual property from an employer can give them strong grounds for a legal case.
A company’s business contacts and clients could well fall under this umbrella, Kojok warns.
“Using intellectual property that doesn’t belong to you can turn into a costly exercise, so be very careful.”
However, there are exceptions to this. If you’ve created a product or formula from your own knowledge in your current job and want to take that with you when you go out on your own, you may be able to do so if you’re able to retain copyright; although traditionally the legal right is assigned to the employer, Kojok says.
It’s also worth bearing in mind that your employer is unable to restrain trade just because you’re forging a business in the same industry and will ultimately become a competitor.
Taking contacts and clients
Generally speaking, taking clients and contacts with you is a bad move, as contact lists are considered intellectual property. You should also bear in mind that many of the IT systems operating in businesses today can alert your employer if data is being accessed or removed without authorisation.
However, if you have personally been responsible for bringing in business for your employer through your own contacts, phoning them once you have left to invite them to do business with you is okay, Revive Coaching business coach Lisa Murray says.
“You need to ask yourself if you have personally been responsible for bringing in these particular clients or not,” Murray says.
Ben Sharp and Chris Janz contacted clients they had dealt with in their previous roles. The pair threw in their corporate roles with Yahoo! Australia and News Corporation respectively in 2007 to forge their own web publishing company, Allure Media.
“I spoke with clients I had dealt with in my previous role at Yahoo!, but no one owns the clients. When you’re in sales, it’s accepted practice that you will speak with clients you’ve dealt with previously when you move on,” Sharp says.
Leigh White also took her contacts with her when setting up on her own. She had specialist knowledge in the field of entertainment software publishing when she left her previous employer and didn’t hesitate in taking her contacts with her when going out on her own to start White Marketing six years ago.
“I took all those contacts I had made with me because I had specialist knowledge that was my own,” she says. “That knowledge couldn’t have been defined as intellectual property owned by my previous employer because it was my own knowledge.”
Taking colleagues with you
What about inviting colleagues to join you in your new pursuit? Sydney recruiter Jason Elias, of Elias Recruitment says there are two things to consider when it comes to hiring colleagues.
The first is your legal obligations, and the second is how you should proceed morally.
“Legally you would need to check your employment contract and read through the non-compete clause carefully,” says Elias. “But if you don’t have a contract in place, you need to consider how this sits with you ethically.”
Elias argues that you have a greater right to ask colleagues to join you if you’re working for a large, nameless faceless organisation. If you work for a small operation, you don’t want to burn your bridges.
“Particularly if they’ve been good to you as an employer by letting you take school holidays off, for example. While you could legally, poaching their staff is probably not going to bring you good karma.”
White offered people she had previously worked with contract work a couple of years after setting up her business, but admits she approached with caution. “I had a general discussion about my resourcing issues and invited the person I wanted to join my business to tell their colleagues that I was looking for employees. It’s a polite way to invite people into the business without putting any pressure on them.”
Kojok says the safest way to go out on your own is to create a point of difference, particularly if you plan to forge a business in the same field you used to work in. “There’s no point replicating the entity you used to work for.”
He reminds start-ups to remain ethical when leaving a job to go it alone. “If you leave on a good note, your old place of employment could end up referring work your way. You should never burn your bridges,” Kojok says.
Melbourne businessman Craig Reardon has been on the receiving end of an employee taking intellectual property.
The founder of website design and eMarketing firm The E Team said despite having a non-compete clause in place, an ex-employee replicated his business model.
“He took the guts of my business and rebranded it,” says Reardon. “It was hugely disappointing and set my business back about two years. I’ve certainly got a good legal case, but I just don’t have the time or money to pursue it.”
Reardon says in hindsight, he would have acted quicker to hire a lawyer. “Obviously I’d never work with him again.”
Checklist of what to consider:
- Dig out your employment contract. Look for non-compete clause and read carefully.
- Create a point of difference in your business, particularly if working in the same industry as you were previously.
- Consider if you have specialist knowledge you bought with you to the business. In this case, you should be able to use it in your new role, but again, check your employment contract.
- Resist the urge to gloat to colleagues or invite them to join you until you’re well and truly established in your business.
- Remain ethical at all times and if in doubt, seek legal advice.