Side Hustle or Legal Hassle? How to Start a Business While Employed Without Getting Sued
Many employees dream of starting their own business while still working full-time. Whether you’re looking to earn some extra income or preparing to take the leap into entrepreneurship, balancing a side business with your current job can be tricky. In particular, it’s essential to navigate the legal landscape carefully to avoid potential conflicts with your employer.
So, what do you need to know if you’re planning to start a business without your employer’s permission? Let’s walk through the legal steps and risk management practices you should take to protect both your job and your new venture.
Understand Your Employment Contract
Before starting any side business, the first step is to carefully review your employment contract. Many companies include restrictive clauses that could limit your ability to work on your own projects. Here are a few key provisions to look for:
1. Non-Compete Clauses
A non-compete clause typically prevents employees from starting a business that competes directly with their employer, either during employment or for a specified period after you leave the company.
Risk: Violating a non-compete could lead to a lawsuit, especially if your business operates in the same industry or targets the same clients as your employer.
What to Do: Consult with an attorney to understand whether your business idea is considered “competition.” In some cases, non-compete clauses may not be enforceable, depending on the state you live in.
2. Confidentiality Agreements
Most employment contracts include confidentiality agreements (NDAs) that prohibit employees from sharing proprietary information or trade secrets with third parties.
Risk: Using your employer’s confidential information to benefit your own business could lead to a breach of contract claim or worse—allegations of intellectual property theft.
What to Do: Make sure your business does not rely on any proprietary information from your current job. Avoid using client lists, marketing strategies, or any other resources you’ve acquired while employed.
3. Intellectual Property (IP) Clauses
Some employers include provisions that claim ownership of any intellectual property (inventions, creative works, patents) you develop during your employment, even if created outside of work hours.
Risk: Your employer could claim ownership over your business’s key assets (like logos, designs, or product concepts) if created while you’re still employed.
What to Do: Clarify ownership of IP in your employment contract. If necessary, work with a legal professional to ensure your business’s intellectual property is protected.
4. Moonlighting Policies
Some companies have policies that restrict or even forbid employees from taking on additional jobs, whether in the same field or not. This is referred to as a moonlighting policy.
Risk: If your employer discovers your business and you are in violation of their moonlighting policy, you could face termination.
What to Do: If your contract doesn’t explicitly forbid side work, ensure your business activities don’t interfere with your primary job responsibilities. Keep your work hours and business hours separate to avoid any conflicts.
5. Conflict of Interest Policies
Many employers have conflict of interest policies to prevent employees from engaging in activities that could be seen as detrimental to the company’s interests.
Risk: If your side business directly or indirectly conflicts with your employer’s business, you could be in violation of this policy, leading to disciplinary action or legal consequences.
What to Do: Review your company’s conflict of interest policies carefully. Avoid soliciting the same clients or entering into deals that could be viewed as competing with your employer’s interests. If your business involves an industry or market your employer operates in, this could present a conflict.
Keep Your Business Separate
It’s important to draw a clear line between your employment and your side business. Mixing the two can lead to misunderstandings and legal challenges. Here are some best practices to keep things separate:
1. Don’t Use Company Resources
One of the biggest mistakes employees make is using company resources—like computers, software, or even time—when working on their business.
Risk: If your employer discovers that you’ve been using their resources, they could claim that they own a part of your business or sue you for breach of contract.
What to Do: Use your own computer, phone, and other tools when working on your business. Never work on your business during work hours or use company email, software, or other proprietary resources.
2. Set Clear Boundaries
Avoid blurring the lines between your job and your business. Even though it may be tempting to work on your startup during breaks or downtime, this could put you at risk.
Risk: If your employer suspects you’re focusing on your business instead of your work, it could lead to disciplinary actions or termination.
What to Do: Dedicate specific time outside of work hours to your business, such as early mornings, late evenings, or weekends.
3. Avoid Conflicts of Interest
If your side business involves clients or partners that your employer works with, you could be entering conflict of interest territory.
Risk: Engaging in business that conflicts with your employer’s interests can lead to disciplinary action or legal consequences.
What to Do: Avoid soliciting clients or partners that are tied to your current job. Additionally, if you handle sensitive client information at your job, keep that information far away from your side business.
Risk Management Strategies
Managing risk is critical when starting a business while employed. Here are a few strategies to minimize your exposure to legal challenges:
1. Consider Forming an LLC
Forming a Limited Liability Company (LLC) separates your personal and business assets. In the event of a legal dispute with your employer, this can offer a layer of protection.
Benefit: An LLC limits your personal liability for business-related legal claims, so your personal assets remain protected.
2. Get Legal Advice Early
If you’re unsure whether your business idea violates your employment contract or if you’re concerned about potential risks, seeking legal counsel is essential. An attorney can review your contract and help you structure your business in a way that minimizes risk.
3. Disclose Your Business (If Necessary)
In some cases, it may be worth disclosing your side business to your employer—especially if it’s unrelated to your current work and won’t interfere with your responsibilities. Having this discussion upfront can prevent potential conflict later on.
What to Do: Be honest about your intentions and clearly explain how your side business won’t affect your current job.
4. Keep Meticulous Records
Document everything related to your business. If there’s ever a legal challenge, you’ll want clear records showing that you operated independently of your employer’s resources or intellectual property.
Know When It’s Time to Make the Leap
At some point, your side business may grow to the point where you’ll need to decide whether to leave your full-time job. While it’s tempting to hold onto both for as long as possible, juggling a growing business and a job can eventually lead to burnout—or worse, mistakes that land you in legal trouble.
If your business reaches a stage where it demands full-time attention, carefully evaluate your exit strategy. Planning your departure thoughtfully can prevent conflicts and allow you to leave on good terms with your employer.
The Bottom Line
Starting a business while employed can be rewarding, but it requires careful planning and risk management to avoid legal issues. By understanding your employment contract, keeping your business separate, and seeking legal advice, you can protect both your current job and your future business.
If you’re ready to start a business while employed and need guidance on navigating the legal landscape, contact us today to schedule a consultation. Our team specializes in helping aspiring entrepreneurs launch their businesses the right way, without the legal headaches.
