A little bit of knowledge can be a dangerous thing, especially when legal issues are involved. This truism makes the Internet a virtual minefield for the unwary looking for “free legal advice,” which often happens in the area of post employment restrictions and noncompete agreements. As discussed below, however, a noncompete lawsuit arising from incomplete or outright inaccurate information is only a Google search away.
Consider for example, a recent question submitted on a popular, public legal website. A person asked if his current employer of nine years could restrict him from starting an identical business even though he had not signed a noncompete agreement.
This question garnered a range of well-reasoned and insightful responses, as well as responses that were less so. For example, some responders offered a blanket conclusion that if the individual had not signed a noncompete agreement there wasn’t anything the employer could do to stop the individual from “switching jobs.”
Another response offered some sort of conclusion to the effect that if the individual never signed a noncompete agreement “such effect would provide no basis for construing any proviso to be engrafted solely on the whim of a former employer” with respect to restricting a person’s post-employment activities. Again, this was some sort of conclusion, but not one I would build a business around.
Noncompete and Post Employment Misconceptions
The problem showcased by the preceding snapshot of noncompete Q&A is best summarized by a famous observation made by management guru Peter Drucker, “The most serious mistakes are not being made as a result of the wrong answers. The truly dangerous thing is asking the wrong questions.”
Applying this to the noncompete Q&A situation exposes two problems: First, the question asked is too narrow in that it focuses on a single issue – can an employer enforce a noncompete restriction if the employee never signed a noncompete agreement – and overlooks a number of other legal issues that could blow-up the questioner’s business plans.
Second, the responses – even the very good ones – may provide some measure of truth as to the specific question asked, but those responses do little to shed light on the full range of legal time-bombs that could be diffused or outright avoided.
In this regard, consider the following sampling of issues that often arise in the context of a former employee starting a competing business:
Trade Secrets. Michigan, like many states, statutorily protect an employer’s trade secrets under the Michigan Uniform Trade Secrets Act (the “Trade Secret Act”), MCL 445.1901, et seq. And while there is some overlap between trade secret protection and noncompete agreements, one does not have to have a signed noncompete agreement in order to maintain a lawsuit for trade-secret theft, which could certainly halt a former employee’s competing business because there are a number of significant remedies available to an aggrieved party, including:
- The award of an injunction against the competing business from operating;
- The award of an injunction against the former employee based on actual or threatened misappropriation of trade secrets;
- The ability to compel a party to take affirmative acts necessary to protect a trade secret; and
- An award of damages for misappropriation.
Computer Fraud and Abuse Act. We have previously discussed on this site the Computer Fraud and Abuse Act (CFAA), 18 USC 1030 (a federal statute) and its application to employees looking to help themselves to an employer’s digital goods before departing. A common argument in such sitautions is that the former employee violated the CFAA, by accessing the employer’s computer “without authorization” while individual was employed and sometimes after leaving the company. A CFAA claim in such circumstances have met with varying degrees of success (depending upon your perspective). But the fact remains, the CFAA is another tool that can disrupt plans for starting a new business that does not depend upon the signing of a noncompete agreement.
Unfair Competition/Breach of Fiduciary Duties. These sorts of claims are more “elastic” in that they can be molded around various factual scenarios where a former employee engaged in some wrongful or “unfair” conduct that could be deemed unethical or unfair. Common examples include copying information, including information that does not meat the definition of trade secret in preparation for competing against your employer, delaying or diverting orders to benefit a new company or employer, or while employed soliciting fellow employees to leave their current employment for your new venture.
The Take-Away for Departing Employees and Would be Entrepreneurs
Legal question and answer sites and Internet research is not inherently a bad thing when it comes to getting answers to legal issues. For instance, one of the goals for this blog is to provide a compelling reasons for people and companies to regularly read it when it comes to Michigan and federal employment law issues. And this goal was inspired by a number of other lawyers who regularly publish blogs that provide top-shelf legal analysis and excellent coverage of legal issues.
But Internet legal research should not be the only thing you do when it comes to making decisions that have legal implications for you or your business plans. I mean, if you believe enough to devote your time, money, and other resources into building a start-up or new company, does it really make sense to build on a foundation of free legal advice from the Internet?