Updated: Feb 11
Are you dreaming of being your own boss and not reporting to someone every working minute? If you have a full time job, it can be pretty daunting to start a business. While some people just rip off the band-aid, leaving their job to start their dream business, others prefer starting a business while working a full time job to see if the business will actually take off. If you’re still employed full time, starting a business may be ethically and legally problematic.
The good news is that starting a business while being in full time employment is not illegal per se. There is no US state or federal law or regulation that prohibits full time employees from forming an LLC, corporation, partnership or other legal business entity. The bad news is that you may be prohibited from starting a business if your employment contract bars you from doing so. Think back to the time when you interviewed with your company, discussed and negotiated your pay, benefits, vacation, and decided to take up the job. As part of the onboarding process, you were given some documents to review and sign. You may or may not have reviewed them thoroughly or had an attorney review them, didn’t think you could or needed to negotiate the terms and put your signature on them. Some of these documents that you signed may have been:
Employment contract – which sets forth the terms of your employment
Non Disclosure or Confidentiality Agreement – which prevents you from disclosing company information to anyone.
Invention Assignment Agreement – in which you agree that any invention or product you come up with during your employment belongs to the employer.
Non-solicitation Agreement – which prevents you from soliciting the employer’s customers.
These could all be standalone agreements or included as clauses in the employment contract. It’s important that you find your copy and review it to see if there are any restrictive clauses.
In some instances, employers have clauses that allow the company to own any inventions or products created or developed by an employee during the time the employee is employed by the company. As a result, any revenues generated by the sale of those inventions or products belong to the company. There could be a noncompete clause that prevents you from leaving the company to join a competitor and allows the employer to take action if you start a business that is in competition with the company or is a business threat. The enforceability of noncompete clauses varies by state. Some states are anti noncompete clauses while some are more willing to enforce them. California is the most hostile towards non compete clauses. Other states that support side hustles are Colorado, Hawaii and surprisingly, North Dakota. New York is quite restrictive in enforcing non compete clauses. While you may have signed a contract with a noncompete clause, it’s enforceability will depend on the state you’re in. It’s best to consult with an attorney before you start working on your business while still at your full time job.
Even if you are working on your business while being employed, you should not use the company resources to work on your business - no office supplies, equipment, software, or computer should be used for that purpose. Don’t work on your side hustle during office/work hours. This may be somewhat difficult if you’re working from home. And lastly, don’t poach your coworkers or company’s clients.
Starting a business is exciting and you should take the right legal steps before you launch your business to avoid any legal trouble. The last thing you want on your plate when you’re starting a new business is a lawsuit.
At Nupur Shah Law, we help with contract review and creation and setup new businesses. We help with reviewing your work and determining the best possible protection available to you. Call us at 646-820- 1366 or email us at firstname.lastname@example.org. I am happy to have a complimentary conversation with you on how to secure your rights.
Working with an attorney to secure your business can help avoid trouble later on. Nupur Shah Law can help you if you have questions about your business.