No non-compete, CA employer, NY client... ?

I have been working as a full-time employee of an IT consulting firm based out of Southern California, however I live in New York City. I did not sign a non-compete clause specifically, but I did have to sign the employee agreement which indicated that I agreed to abide by the rules of the employee handbook.

In the employee handbook, there is a stipulation for non-disclosure and conflict of interest agreements.

Anyway, the situation is that I have been working as a programmer for various clients. A while ago, I had a client - lets call them C. While on the project at C, I developed a very good relationship with one of the vendors there, who was the lead of that project.

A year later, having been through several other clients, I am back at company C. The vendor is still there, and it's good to be working together again.

Anyway, the vendor had mentioned to me some ideas that he felt would make good projects for the client C. The vendor is quite influential with the client and suggests that "we" could do it. However, I would prefer "we" doesn't include my current employer, whom for a number of reasons wouldn't make a good fit.

Given that there is no specific non-compete clause in place, could I resurrect my inactive S-corporation, kiss my boss goodbye, and subcontract with this other vendor to work on some of these lucrative projects?

Can my employer do anything about it? The possibility is that they will lose this client. The client has stipulated in the past that they would only do business with my employer if I were leading the projects...

1 answer  |  asked Jan 8, 2003 11:53 PM [EST]  |  applies to New York

Unlock Non-Compete Agreements: Keys to Escape

Answers (1)

David M. Lira
When You Don't Have a Non-Compete

I assume that not only do you live in New York, but most, if not all, of your work is performed in the New York City metropolitan area. In addition, I assume that you employment agreement does not say that it is governed by the law of a different state, such as California. (My bet is that California law would be more favorable to you, but I can't be sure about that because I do not practice in California, and am not familiar with the details of California law.)

New York law disfavors non-compete agreements in employment contracts, meaning, assuming that there is a non-compete provision in your agreement, the likelihood is that the non-compete provision would not be enforceable.

Based on what you say in your query, I can't be entirely sure that there is not a non-compete provision incorporated into your agreement by reference to the employee manual. I don't know what you mean by non-disclosure and conflict of interest "stipulations" in the employee handbook.

But you say you have no non-compete provision. So, the law tells me you should have no fear of leaving your current employer, starting (or restarting) your own company, and taking clients away from your ex-employer. That is the essence of the competive free market, which big businesses always say they love but do as much as possible to kill.

But there are some proviso's here. One is that you can always sue anyone for anything. The question is never whether you can sue, because the answer is always that you can always sue. This means that, even though the law would seem to be on your side, an ex-employer determined or angry enough could still sue you, even though the ex-employer will almost surely lose in the end.You will win, but you will have incurred legal fees, and maybe lost clients because your ex-employer may also sue the client. Remember, in the US, the general rule is that each party pays their own costs. Maybe you could recover your costs in a second abuse of process lawsuit, but that type of lawsuit is hard to win.

Although being sue unjustly is a possibly that I must raise, if I was the one facing the choice of staying or leaving an employer, the fear of a lawsuit by itself would not stop me.

Another proviso has to do with I said. Ex-employees can compete against ex-employers. Ex-employees can lure away business from ex-employers. But current employees cannot do that because current employees owe their employers a duty of loyalty. If a current employee lures business away from a current employee, that current employee could be forced to pay over to the employer any profits earned by the employee from the taken business.

The trick in this issue is determining when an employee becomes an ex-employee, and when an employee has started to lure away business from an employer. These are intensely factual issues, requiring a much closer analysis than is possible from the facts that you have presented in your query.

One thing you said in your query tends to lower your risk. You said that the plans being discussed with client C would not fit with your employer. This tends to show that you have not begun the process of luring business away from your employer while you are currently with that employer, because it seems that your employer would never take the business to begin. Note I said "tends." The lack of fit seems to work in your favor, but it probably isn't a fact that is conclusive.

posted by David M. Lira  |  Jan 9, 2003 08:55 AM [EST]

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