• How-to

It takes time from ideation to actual execution of any plan, especially when it involves starting your own business. Those who are employed often like to have the cushion of a monthly salary while perfecting their business plan. This way, bills can be covered while attempting to establish a client base.  However, there are legal issues to be aware of when starting on your own while still being in an employer-employee relationship.

While most of the below-mentioned points are common sense, these still happen to be the top five mistakes startup entrepreneurs commit. The employer-employee relationship has certain well-entrenched doctrines, from Intellectual Property (IP) laws to labor laws. All IP generated by the employee ‘during the course of employment’ belongs to the employer.

Again, an employee, especially a key employee, cannot operate a competing business. An employee must not only check the employment agreement and employment policies but be aware of these doctrines.

Speak to your employer
This should be mandatory. You should discuss with your employer the business you want to pursue (ensure that you do not misrepresent) and check if there are any issues. Honesty is the best policy. Some companies have restrictions/disclosures required on holding board positions or substantial ownership. It is best to be upfront and transparent, rather than daring a lawsuit or losing IP.

Moonlighting
Some organizations have zero tolerance to moonlighting, while some are okay as long as it does not hamper productivity, is not in the same domain/area of work and does not utilize the company’s resources. Even if you are working on your startup on personal time, ensure it is a different business from that of your employer. If all this makes you tired all the time, it still means that you are not a very productive employee.

Conflict of interest
Multiplicity of interests clouds the right decision-making. Ethical impropriety is hard to define. Best way to deal with it is to avoid it.

Company’s trade secrets
These belong to the company and can be used during employment only for the benefit of the company. Misappropriation by memory is the most difficult to defend. Adequate disclosures may not be the best plan for mitigation of risk either. You must have heard before that IP creation for your startup is like being pregnant while being married to someone else (the employer). It raises ownership issues and other legal rights.

Cooling off period
Check the employment policy for cooling off period where an employer may prohibit the employee from pursuing the same/similar business. The belief is that with the time lag, memory fades or the trade secret the employee had stales.

Many of the points made here can’t be patched up later. You should not only strip off everything that belongs to your employer but also be perceived to be not using anything that belongs to the employer.

It costs much less in terms of time and money to get it right at the beginning than trying to sort it out later.

This article is for informational purposes only and is not a legal advice or opinion.

SHARDA BALAJI is the Founder of NovoJuris (www.novojuris.com), legal counselors focused on startups and SMEs in the technology space.

©Entrepreneur January 2011

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How-to, legal, startup