Many businesses are launched with ideas conceived while working for an old employer. Entrepreneurs should be mindful of their obligations to their old employer in particular any contractual agreements entered into concerning confidential information, intellectual property rights (eg. assignment agreement) and competition.

1. Your Previous Employer Likely Owns the Intellectual Property You Developed During the Course of Your Employment under an Assignment Agreement. 

The perfect example is the lawsuit filed by ConnectU and the Winklevoss brothers from Harvard against Mark Zuckerberg and Facebook. The suit was the subject of The Social Network movie and ended up partially settling in 2008.

For those of you who haven’t seen the movie, before launching Facebook, Zuckerberg was originally hired or contracted with to develop source code for ConnectU,  a social media network connecting university students.

The suit filed by ConnectU alleged that after Zuckerberg was hired he copied the ConnectU idea and used source code intended for the website he was hired to create.  In doing so, the Winklevoss brothers alleged that Zuckerberg breached his obligations under the employee or hire agreement to protect their confidential information and intellectual property.

Although ConnectU alleged an oral agreement and relied on common law, many businesses require employees to sign an intellectual property assignment agreement.

An assignment agreement provide that the employee agrees that any inventions, ideas or work product developed during the course of the employee’s engagement with the employer will be owned by the employer.

In Canada, even in the absence of a written assignment agreement, the Copyright Act provides that where the author of a copyrightable work was employed by another person, and the work was made in course of his employment, the employer is deemed the owner of the work.

As a result, if your new business is in any way dependent on work performed for a previous employer, the previous employer may have a claim against you and your business for infringement of their intellectual property.

2. You Likely have an Obligation to Protect Your Prior Employer’s Confidential Information

Employees owe a duty to maintain the secrets and confidential information of an employer, whether or not there is a written agreement to that effect or not.

The disclosure and use of confidential information by an entrepreneur for the purpose of operating a new business, especially where the new business is competitive with that of a former employer, can subject the entrepreneur and his new business to a lawsuit.

3. You May Have a Non-Compete/Non-Solicitation Provision In your Employment Agreement. 

Many employment agreements also include a provision that the employee will not  compete with the business, or solicit employees, customers or suppliers of the former employer for a period of time after the employee’s employment is terminated.

Entrepreneur should also be mindful of these restrictions when recruiting other employees or contractors for their new business.

Litigation lawyers are always shocked to find how often employees leave behind a trail of e-mails revealing the extent to which they were working on matters related to a new business, including recruiting others, while still employed in their former job.

With proper and timely legal advice, founders can often find ways to accommodate restrictions imposed by former employers and others.

Wires Law offers a range of general counsel legal services to advise entrepreneurs on these types of issues.

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John Wires is a Toronto business lawyer who comes from a corporate litigation background. John is the founder of Wires Law, a law firm serving corporate, technology and e-commerce clients across Canada. He was called to the Bar of the Law Society of Upper Canada in 2011 and has appeared in the Ontario Superior Court, the Ontario Court of Appeal and private arbitrations. John graduated from law school with first class honours specializing in both International Trade and Corporate Commercial Law. Having litigated shareholder and employee disputes he understands the value of companies protecting their businesses with the proper upfront legal work many Canadian businesses lack.