“Technology Start-Ups (Part 1): Are You Restricted by Obligations to a Previous Employer?” by Jan Lederman, Thompson Dorfman Sweatman LLP

Feb 11, 2011 | Corporate Member News

The questions I most frequently receive continue to focus on start-up issues, whether new products or technologies. So, in the interests of demystifying some of the legal issues involved with technology start-ups, I’ve decided to address the main topics in a 10-part series on start-up issues. Let’s get started.

One of the first legal questions for the budding entrepreneur is, what did you used to do? I ask this not to determine whether you’ve got the stamina for the start-up life. That may be a good question, but it’s not really for me to ask. Rather, the question is aimed at determining whether you have obligations to your previous employer which might restrict what you want to accomplish in your start-up venture.

These obligations can take several forms. The first step is to confirm whether you had a letter confirming your hiring and setting out the terms of employment, or whether you signed an employment contract, confidentiality agreement, non-disclosure agreement (NDA), or had any other agreement with your employer. The key things you’re looking for are confidentiality, non-compete or non-solicitation covenants, or an assignment of any intellectual property rights you may have acquired as an employee. These covenants can be embedded in any type of agreement, so don’t assume they’re not there just based on the formal name of the agreement. If you do have any such agreement, you’re probably well advised to consult your lawyer as to the scope, and duration, of any restriction.

Even if you didn’t have an agreement with your former employer, that still does not mean you’re completely off the hook. If you were a director, officer or key employee, you may owe fiduciary or “key employee” obligations to your former employer. Unfortunately, there’s no “bright-line” test as to when these obligations apply. Generally, if the employee was a director or officer, or if the business would be particularly vulnerable to the actions of the employee (such as a key salesperson), or if the employee was the company’s primary contact with customers, or had a high level of responsibility for sales or revenues, or had access to critical customer information or differentiating business strategies, then the employee is likely to be found to owe a duty to the employer even after termination of the employment relationship. In this situation, you can still compete with the company, but you can’t do so “unfairly”. That means you cannot use the company’s confidential information, or solicit the company’s customers or employees. And beware, the new employer, and other third parties who might profit from your breach of these obligations, also may become liable. There are strategies for avoiding liability in these situations, but it admittedly can become a little tricky. You should seek legal advice if you find yourself in this situation.

In Part 2 we’ll talk about business structure.

About Jan Lederman:

Jan’s practice is concentrated in the area of corporate and commercial law with an emphasis on transactional work, including mergers and acquisitions, project development, venture capital, private equity investment transactions and public and private debt and equity financings. She has extensive experience in developing innovative development structures and strategically planning negotiations with multiple stakeholder groups. Jan also acts for co-operatives, non-profits and charities and teaches Charity Law at the Faculty of Law, University of Manitoba.

To find out more about Jan or to contact her, click here

This post originally appeared in Jan’s Biz Law Blog. Check it out here.  

About TDS:

With the benefit of more than 100 years of service to Manitobans, TDS has become one of the leading full-service business, employment and civil litigation law firms in the Province, with approximately seventy-eight lawyers. TDS has lawyers who provide services to its clients in both official languages and also in Spanish, Portuguese, Italian, Russian and Greek. Our professionals are assisted by a support staff of about 100, including paralegals, legal assistants, law clerks, accountants, systems and human resource personnel. We occupy four floors at Winnipeg’s premier business address, Canwest Place, in the heart of the City’s business district. We encourage our clients to make use of our facilities which include numerous well-finished boardrooms of various sizes.

TDS has long been recognized as a centre of excellence in the areas of labour relations, employment law and civil litigation. Recently, LEXPERT® The Business Magazine for Lawyers recognized us as being the only Manitoba firm at the centre of its “Bulls-Eye” of firms practicing corporate law in the Province. For every challenge that confronts business people in this Province, we have the expertise necessary to develop creative solutions in a timely and cost-effective way. A number of our Partners have been recognized by LEXPERT® and THE BEST LAWYERS IN CANADA® as being among the best lawyers in the country in their particular areas of practice.

TDS was one of the founding members of Lex Mundi, The World’s Leading Association of Independent Law Firms and we continue to be its only Manitoba based firm. This organization, with its 160 firms, has members in every province of Canada, state of the United States and 100 countries throughout the world. Lex Mundi firms practice in more that 50 areas of law and, in order to qualify for and maintain membership, firms must meet strict quality control criteria. Lex Mundi has a no-cost, initial consultation policy that allow us, as a member firm, to obtain a preliminary understanding of the relevant legal considerations pertaining to our clients’ affairs in the various jurisdictions in which Lex Mundi has representative firms.

We have embraced technology as a means of providing clients with timely and efficient service. Our document management software allows us to quickly retrieve and modify documents and make efficient use of our knowledge base. We also subscribe to both the LexisNexis Quicklaw and WestlaweCarswell® services, being the premiere legal research databases available in Canada, which enable us to conduct detailed searches of legislation, decided cases from both courts and administrative bodies and scholarly articles published in legal journals throughout the western world, in order to ensure that the legal advice we provide to our clients is the most current presently available.®

TDS is rooted in the legal and business communities of Manitoba. We also encourage our lawyers to be significantly engaged in wider community matters and many have held and continue to hold positions of leadership in that regard. 

When you retain Thompson Dorfman Sweatman LLP, your initial contact may be with our Managing Partner, Donald G. Douglas. He will ensure your matter is referred to the lawyer with the most expertise in your field or, if necessary, he will assemble a team of lawyers to deal with the issue.

Acumen Corporate Development Inc. an affiliate of Thompson Dorfman Sweatman LLP, focuses on providing North American companies with a structured, comprehensive approach to the planning and execution of growth by acquisition, financing and other strategic opportunities. Acumen spearheads the corporate development function for businesses, providing the experience and resources required to achieve extraordinary results with ingenuity, insight and in-depth business intelligence.

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