NDA & Non-Competes & Startup Culture

With all of the changes happening in the market and world.  Change brings opportunity.  A lot of it.  Nobody knows that better than the people who work for high tech, new economy startups.  If you look around, these are the people who are taking on everything from to space travel to spurring growth in developing countries.  Startup founders and leaders have to recognize that it is the same people who you want to work for you that are also most likely to be the next successful startup founders.  This relates closely to my previous post about rock star employees.  As companies struggle to hire the best and brightest people to join their ranks they will have to consider both the pros and the cons of what that means just like sports authorities are considering the pros, cons and ethics surrounding doping in sports.  In short, building a company full of entrepreneurs is much like mixing fire and fuel.  Enter the non-competition agreement.  

People who work in startup companies are different than the 9-5 clock punchers.  If they don’t start off that way they become that way quickly.  Having spent the last couple of years working primarily with startup companies I have found that even the most unlikely entrepreneurs are hungry for their own entrepreneurial success.  Startup founders, leaders and investors know this very well.  The stock response is the non-competition agreement.  If you have worked for a startup company then you have no doubt signed a non-competition agreement.  If you are like most people then you probably gloss over it just like you did when you siged your lease or accepted a credit card offer.  After you read this you may want go back and read it from start to finish.  I would if I were you, especially if you’ve had a bright idea recently. 

To begin with, signing the document is usually the end of it.  In some cases a company will try to use the NDA & Non-Compete to punish an employee who leaves.  During my time as a human resources consultant I have never seen this happen.  In other cases, a company will use the non-compete to capture intellectual property and insight that walks out their door.  This is much more prevalent in business.  Some companies, including a former employer of mine, will make their employees sign what lawyers will call “overly restrictive and unenforceable” contracts.  I once signed an agreement as a recrutier that said I couldn’t work as a recruiter within a 75 mile radius and that I couldn’t work with any of the company’s clients.  We had clients all over the country and besides, that was just plain absurd.  I trusted the company and was eager to get to work so I glossed over my non-compete.  Fortunately, I took a job that didn’t involve either the market or the company’s clients so I didn’t have to deal with lawyers.  In cases where you have a unique insight or set of knowledge, a non-compete can be more than just part of the onboarding process when someone is hired.   

What happens when an employee has a stroke of genius while at work or while they are employed by a company and then acts on it?  Contrast this with the Flash of Genius (great movie) where the inventor comes up with something in his own lab while at home and then took his idea to Ford.  The idea was entirely his and entirely being researched by the major auto makers in Detroit.  The picture I’m painting is more like an engineer who works at Ford and has his or her Aha moment while at work under a non-compete.  The engineer proceeds to build the game winner idea, starts selling it as a product while still at Ford under an alias, and then builds it.  After success is imminent the engineer quits and the money keeps rolling in.  This is a much different situation than changing jobs, but one that is becoming more important for our multi-talented workforce.  The same workforce that becomes more so by the day at Startups.

These days just about everyone I know is looking for ways to make extra money.  Developers, designers and just about everyone else with skills are crazy busy working on side projects and making as much if not more on them than they are in their day jobs.  Employers usually don’t take action in cases like this because the employees are getting their work done.  In a few rare cases an employer fires the employee or starts looking for a replacement for the employee, but as long as the side business isn’t doing more than taking over the occasional restroom (aka “the office”) break things work out.  Part of the reason why this is allowed to happen is because the employees are providing services that would not have any tangible value to the company and they are getting their work done.  Keep in mind that smart employers are screening out people who are not committed to the cause, but there is no way to prevent someone from starting something up after they begin work. 

The bottom line here is that you need to know what your contract says, how it applies to you and whether what you are doing is ok with your employer.  In most cases the employer has a non-compete document with a form that provides for prior disclosure of inventions.  This is the place where you can disclose what you are doing on the side.  If you are smart then you will get a letter from an officer of the company, or at least from your supervisor, that gives you the green light to continue your side work.  Be prepared to defend your request from questions like “Why should we hire you again?” and “Will this impact your productivity?”.