San Francisco, CA asked in Antitrust, Business Formation, Business Law and Employment Discrimination for California

Q: Is it legal in CA to start a business that is competitive with a former employer?

2 Lawyer Answers
Maurice Mandel II
Maurice Mandel II
  • Consumer Law Lawyer
  • Newport Beach, CA
  • Licensed in California

A: It depends on whether you signed any trade secret agreements in your former employment. They could use that to claim you were using confidential information to contact your former clients, whether it is true or not. There is no legal prohibition against competing against a former employer using publicly available information. Be ready to lawyer up when they find out you are competing.

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Neil Pedersen
Neil Pedersen
  • Employment Law Lawyer
  • Westminster, CA
  • Licensed in California

A: California is very protective of an employee's right to carry on their trade and to engage in competitive business pursuits. This is embodied in Business and Professions Code section 16600 that renders void any agreement that restrains someone's ability to continue working in a field they know. Similarly, there is no inherent legal reason why you cannot open up a competing business against your former employer. However, there are limits on that right.

First, you cannot use a present employer's resources or time to build your own business.

Second, you cannot solicit away present employer business or clients while you are still employed with the former employer. However, the minute you are out the door and no longer employed you can contact people with whom you did business with the former employer and try to solicit them away by fairly competing with the former employer.

Third, it is unlawful to take legitimate trade secrets from your former employer and use them to compete.

Fourth, it can be forbidden to use confidential information learned at the former employer to compete against it if you have agreed to maintain the confidence of that information.

Fifth, if you had an ownership interest in the business before you left, and you sold that interest back to the other owner, a non-compete contract could be enforceable against you depending on various circumstances.

Keep in mind that even though you may be legally allowed to compete against a former employer, that may not prevent that former employer from engaging in a form of predatory litigation by suing you when you are in your beginning stages, knowing that defending the litigation will cripple you and make you unable to proceed with your plans to compete. This is not uncommon.

It would be very wise for you to seek out an attorney to assist you in this process.

Good luck to you.

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