Question

Baby Products, Inc. hires Christopher Coleman to develop and implement an e­commerce strategy for marketing Baby Products’ widgets. Coleman signs an employment contract that includes a clause prohibiting him from competing with Baby Products during and after the employment. Before the strategy is implemented, Coleman resigns from Baby Products’ employ and opens a business in the same city that offers similar products and widgets as Baby Products. Baby Products brings a suit to enjoin Coleman from operating his business.

Assuming that the parties are in California, what are three main factors a court may consider in determining whether Coleman should be enjoined, or allowed to operate his business?

Answer 1

An employee who is preparing to set up a business in competition with their employer may be in a breach of contract.
An employee has number of express & implied duties in their contract of employment. One of these duties is the duty of loyalty. If an employee commits an act which is injuirious to his employer & his employer's interest it will generally be deemed a breach of this implied duty.

If you caught setting up a business which may compete with your current employer then the potential ramifications depends on what you have actually done in planning the business.

If you’ve left your previous employment then your employer can’t stop you from setting up a business in competition unless your contract of employment contains the above-mentioned restrictive covenants.

Check your contract of employment for express terms that prohibit (potentially) your preparing to set up a business in competition after you leave your employment. Further, look for the existence of restrictive covenants.

Make sure that you make your plans without arousing suspicion. In the majority of cases little action can be taken against you for preparing to set up a business in competition but, all the same, it’s wise to avoid the sort of confrontation that arises in such a situation. Don’t work on these plans at work and try to tell as few people as possible.