Competition Is Against The Law?


Old 06-08-07, 09:03 PM
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Join Date: Jun 2002
Location: Northern Minnesota
Posts: 1,497
Competition Is Against The Law?

A friend of mine worked for a small company installing and servicing garage doors. After a year or two of working there the owner of the company decided to buy mickey mouse openers.

My friend, being a straight shooter, told the customers the openers were junk. Well....this got back to the boss and my friend was laid off never to return.

Fast foward to today: he has started his own door company and his lawyer says to be "very careful" concerning the businesses he contacts from the original company he worked for. Something about if he has anything written down. He doesn't have anything written down, he can remember where he worked for heavens sake. All he did was give them his card and he has two companys go his way because of the quality of work he does.

One more point....the original boss laid him off so he could hire his relative who recently retired thus not having to pay health insurance.

Hope this makes sense.

Thank you,

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Old 06-09-07, 05:43 AM
GregH's Avatar
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Location: Manitoba
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I am nowhere close to having any legal expertise but was close to a similar situation.

The law may be the same where you are but here any information developed while in the employ of someone is the employer's property.
So, if he developed a contact list while working he could get in trouble if he uses that list to start out on his own, written down or not.
Paying a visit to his former employers contacts and handing out cards could here most definately get you in trouble especially if it involves a former client who might be loyal to his former boss.

He should seek more advice from his lawyer on how to aproach this as he may in the near future need his services.

Not sure if it applies but I often see in the local classifieds an ad with a picture of someone announcing they are providing services in their field without mentioning their former employer.
Old 06-09-07, 06:11 AM
Join Date: Aug 2000
Location: USA
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Former employees who go into business for themselves happens every day. Noncompete clauses can be part of employees' contracts, but even these are difficult to enforce. In California the noncompete clauses are illegal. Laws vary from state to state. Noncompete clauses should be part of the employee's contract with language that specifically states what information is to be protected--say, customer lists, sales strategies, expansion plans and pricing strategies. Courts are more apt to enforce noncompete clauses that state a protective time period, say one year or five years, etc., and also state a specific area, within 50 miles for example. Too, if the noncompete clause is restricted to only those employees who have privy to such information rather than having a blanket noncompete clause for all employees of a company, the court is apt to be more supportive.

"He has started his own door company and his lawyer says to be "very careful" concerning the businesses he contacts from the original company he worked for." Then, his lawyer is best to provide the legal advice. Without knowledge of the specifics of any employee contract and the state's laws, it would be difficult to hazard a guess if there would be repercussions of a customer of the former employer decided to do business with your friend.
Old 06-09-07, 06:17 AM
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I encountered a similar situation once and as far as I remember, I'm pretty sure it's only for one year after they leave. Let's face it, you can't control someone's livelihood forever, after all. I do know tho that he shouldn't bad mouth the former employer or put his products down. That's unprofessional and will bite him in the butt down the road because eventually no one will want to deal with him.
Old 06-09-07, 08:52 PM
Join Date: Mar 2007
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Smile All good comments

There are two basic issues here. Non-compete Agreement and Tortious Interference with Business Relations(hips).

As to Non-Compete Agreements, you do have to look to the jurisdiction to see if they are enforcible or not. Many states allow them. The key word however is "reasonableness" as to time, territory and content.

First of all, if such a document was never signed by the fired employee, then this part of the discussion is much ado about nothing and you move on to the second issue.

If such an agreement was signed by the fired employee, it has to be reasonable. In Michigan (in which such contracts are legal) as a general rule a non-compete will be enforced if it covers a reasonable period of time - 3 years having been upheld. It must meet a geographic test. 15-30 miles has been held reasonable. Finally, the content of the restriction must be reasonable. The best example I can think of is proprietary information as one of the posters above stated. For example, if the fired employee learned something about his trade or business that he couldn't learn any where else or if he created a new invention on company time using company materials etc,. this is likely to be enforcible against the fired employee. He can't take it with him so to speak.

The basic idea of "reasonableness" in a NCA is you can't completely take away a person's ability to earn a living in his chosen profession.

Generally speaking any knowledge picked up by an employee specific to that company can't be used. However, if the knowledge is of a general nature, you can't prohibit it.

A classic example is a dentist who leaves a practice to start his own. If he signed a NCA for 3 years and 30 miles saying he can't compete in the dental world, that agreement will likely be upheld as reasonable, so long as there are no other factors at play here, duress, fraud, forged signature, etc.

Assuming a NCA is not present, a fired employee is free to compete all he wants. The only restriction would be he cannot interfere with a known business relationship his old empoyer may have with a client, patient, customer.

This can get a little sticky for a lot of reasons and is tough to prove in a court of law. The test really boils down to did the client/patient/customer make up his or her mind to switch to the fired employee for reasons other than the alleged interference. For example, you have every right to go to the dentist of your choice no matter how you reached that decision. And there is nothing the old dentist can do about your choice as it relates to you the patient.

So the question becomes did the fired employee interfere with that relationship to the point that it would be unfair for the fired employee to keep the new patient. I guess the best example would be purloining a patient list and sending a note to each one inviting them to have their dental work done by the fired dentest.

Here is where it gets sticky. It the note merely states the fact that the fired guy is starting a new dental practice and gives his name, address, phone number, hours, etc., that will probably not result in this actionable tort.

On the other hand, if the fired guy says he'll clean your teeth for free on the first visit or offer a one-time discount on a switched patient's first dental bill, that may well rise to the level of tortious interference with business relations allowing the old employer damages and maybe even an injunction.

This is why it is so important to have a NCA in place if they are allowed in your state. It takes care of some of the sticky issues in advance by way of a contract.

As to the alleged bad mouthing of the old employer, yes this can also constitute interference, and or a charge of defamation(slander if oral, libel if written), if untrue. It's just not worth it to bad mouth the other guy no matter how true it is, even though truth is always a defense to libel, which is very hard to prove.

With regard to the health insurance question, this is a non issue as relates to this discussion. So far in this country, an employer is still free to offer or not offer any benefits he wants.

Continue to talk to your lawyer about this behavior if you have any questions.

Good Luck!
Old 06-10-07, 08:52 PM
Thread Starter
Join Date: Jun 2002
Location: Northern Minnesota
Posts: 1,497
Thanks folks for the replies. I never dreamed there would be so many angles going into a business for yourself.

Couple points, don't know if they apply or not:

I don't know if he signed a contract or not, just the boss and two workers.

I don't think he's been laid off a year, maybe 6 months.

He never 'bad mouthed' the boss, just said the openers he had to install were junk. I guess that could be one in the same.

Anyway, I'll give him a call and see if he has an e-mail address, I know his wife does, then maybe he can chime in here if he wants to.

Thanks again.


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