My Employee Is Setting Up a Competing Business. What Are My Options?

Posted:  Nov 14, 2022

The notion that competition is good for business may apply only to customers or consumers. Truth be told, as a business owner, the last thing you want is fierce competition. It gets even more complicated if the competitor is one of your current or ex-employees.


As a business owner, if you are faced with a situation where a current or past employee of yours is just setting up his business, and the business in question is likely to pose a serious threat to your business success, then you need to have a solid plan in place to mitigate all the possible risks this competition could bring.


However, before we go any further, we need to say that, considering how litigious the business world is, it is perfectly normal for workers to try and start their own businesses. At the same time, they are still employed—I mean, we all have to start somewhere. Also, since the goal of many workers is to be their boss, it shouldn’t come as a surprise to you or anyone else as to why they would look to try start-ups.


As stated earlier, having a good plan in place to mitigate possible risks posed by this type of competition is vital as it could go a long way in helping you protect the future prosperity of your business. In this article, we will show you what you can do and how to go about it.


So let’s get on with it.


Litigation Options

As an employer, one of the many ways you can use to protect your interests and that of your business from any form of loss either now or in the future due to competition is to employ legal ways. This is because some laws and contracts are already in place to help you deal with situations like this.


Have Them Sign a Non-Compete Agreement

Before we explain how this will help your business, it is only fair if you know what a non-compete agreement is and how it can be enforced.

Just as the name implies, a non-compete agreement is a written document usually included in an employee’s employment contract and signed by the same employee before they are even hired. The content of this agreement is simple and pretty straightforward. If signed by the employee, this clause will forbid them from setting up a business that will directly compete with their employer. At the same time, they are still employed by the same company or even after their employment period.


You are wondering why this clause is so important. Well, considering the amount of information an employee has access to, you will understand why they can use that to their advantage. Therefore, ensuring that your employee signs this non-compete clause will prevent them from using all the sensitive information they have been exposed to while working with you as a competitive advantage.


Let us look at some other scenarios that will demand the need for a non-compete clause to be included in your employee's employment contract:


1. When preparing an employment contract: Before employing someone to work for you, you need to include the clause in the employment contract. If the employee is satisfied with the terms and conditions, he or she will sign the contract.


2. In a franchise agreement: In this type of agreement, the clause will be signed by the other party to protect the intellectual property of the franchisor.


3. Contract Manufacturing: This type of agreement exists in the manufacturing industry. If signed, this type of clause will prohibit a manufacturing company from making the same products for another company.


You probably wonder, “What happens when an employee violates this non-compete clause?" The simple answer is that employees who violate the non-compete clauses can be sued. And he or she will be severely punished by the court. The punishment could come in the form of hefty fines, etc.


What Could Cause a Non-Compete Clause to be Ineffective?

A non-compete clause could be rendered unenforceable if certain conditions are not met. For example, if the consequence of enforcing such a clause could cause harm to the local economy, the court might strike such an allegation out. Also, if the clause prohibits the employee from starting his business in an “unreasonable” location, the clause could be rendered ineffective. The clause may only be effective in areas near your business. And lastly, the non-compete agreement can be considered ineffective by the court if they deem the time for the clause to be in effect as unreasonable.


Employee Poaching

This is a situation whereby a former or current employee of yours decides to hire some of your current workers to come and work for his own business. When you notice that an employee has encouraged some of your workers to leave their current job (your company) and come to his, you can take legal action against such an individual. All you have to do is gather relevant evidence and call your attorney for proper guidance. However, before the employee can be sued, you must be sure that such an individual has already signed a clause prohibiting employee poaching in their employment contract.


If the employee had already signed such a clause, then if he or she was charged in court, the employee could be fired and be instructed by the court to pay for damages.


Hire a Legal Expert Today!

You have a few different options when you discover that one of your employees is setting up a competing business. You can try to work things out with the employee, you can do nothing, or you can take legal action. If you decide to take legal action, it's important to consult with an experienced Employment lawyer who can help you navigate the complex laws and ensure that your rights are protected. At Steven and Company Law Corporation, we have experience dealing with cases like this and are here to help. Contact us today to schedule a consultation.


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