Employment Agreements: Don’t Sink Your Startup Before You Set Sail

by Paul Godfread


So you’ve had this idea for starting your company for a while now-but-you’ve got to pay the bills, so you’ve kept a day job. Fast forward: the time is right, you’ve been patient and you’re ready to spread your wings; you return your key card, your laptop, all your materials and you are free!


What agreements have you signed with your previous employer?  Failing to understand legal obligations generally known as “Employment Agreements” can sink your startup before you even leave port.  Here are a few types of common agreements that, if ignored, can set you off on the wrong course from the onset.

Non Compete Agreements or Covenants

Many employers have standard non-compete agreements.  In Minnesota, these are at the least, partially enforceable; the courts have set a reasonableness standard.  Factors considered when determining reasonability include:

* What kind of training did the employer provide?
* Did they give you special access to customers?
* Were you compensated specifically for the promise not to compete?

Minnesota law doesn’t aim to keep people tied down, but there are circumstances where non compete agreements are enforceable to the extent they are reasonable.

Intellectual Property Assignments

Without a written IP assignment agreement, both patent rights and copyrights are assumed to be owned by the inventor or author.  Many employers have IP assignment agreements where you agree to give the rights to any work created while working for your employer.  Translation: even if a patent has not yet been applied for or a copyright not yet registered, the employer will still own whatever you made.  Where it gets messy is whether or not those agreements cover the “after hours” ideas or whether or not the invention or authorship was part of your regular duties as an employee. Much of the case law in that area can be pretty fact specific.  Courts may consider your role in the company and to what extent you made use of the employer’s resources.  Ignoring IP assignments may mean that you have just unintentionally gone back to work for your old boss.

Confidentiality Agreements or Non-Disclosure Agreements

Although confidentiality agreements or non disclosure agreements (aka NDAs) would seem to only prevent you from telling other people about what you learned while working for your company, they are often written to also prevent you from using that information as well.   If your company had you sign such an agreement, think about whether your new startup is relying on confidential information that you learned through your position within your old company.  I stress confidential because everyone learns useful skills in any job.  It is a problem when its not just general skills that you are using, but rather, specific, proprietary information and trade secrets you could only have obtained through your previous employer.

These agreements shouldn’t prevent you from starting your own company, but you need to have a serious discussion with potential partners and probably an attorney to determine what kind of freedoms or restrictions are in place.  If your new company is going to compete with your former employer (in some sense of the word), fully expect that they will try to enforce any pre-established agreements, especially if they’re on paper.  As always, a little planning early on can save a lot of pain later.


  • http://www.10foldsolutions.com Brett

    Great post, very informative! What if you leave your company to start a similar business, using similar technology (non-proprietary), but go after a totally different market? Obviously, everyone’s non-compete is different, but what are your general thoughts/concerns regarding this?


  • http://www.godfreadlaw.com Paul Godfread

    Brett –

    If its truly non-proprietary and there aren’t any other contractual obligations in place, then you might be fine. If you aren’t competing with your employer then they might not have a reason to fight with you either.

    Most of these cases are fact specific and I can’t really give you a straight yes or no without the full story. With this post, I am just encouraging people to do a survey of what restrictions might be in place. Its always better to know about potential problems ahead of time.

    Thanks for your comment!