Cutting the cord

Legal considerations when leaving an employer to start your own business

Today in this new era of entrepreneurship, there are more people than ever who are doing what they love  and becoming their own boss, and at the same time, taking on all of the new challenges and issues that any new entrepreneur faces. Many new entrepreneurs have the drive and motivation to go out on their own, but the combination of a competitive marketplace and a lack of familiarity with the actual workings of the industry require one to gain experience first. So the entrepreneur takes a job and learns the trade. A few years down the road the opportunities start to become apparent, and it becomes time to "cut the cord"; however, there are a number of considerations to take into account before running from your employer and starting your own business.

"Before leaving your job to embark on an entrepreneurial venture similar to that of your employer, the first place you should look is your employment contract", says Aaron Grinhaus, a business lawyer and an Associate with Himelfarb Proszanski LLP, A Toronto-based, multi-service law firm. "The employment contract may have restrictions on where and what type of business you can conduct for a certain period after you leave your job."

Mr. Grinhaus goes on to explain that these contracts can be tricky, and so it is best to have a lawyer review it for you before setting off to build your business. Making sure that you are not in violation of the terms of your contract can help you avoid costly disputes that can result in litigation. "We once had clients who approached us to incorporate a new company for them. We were unaware of the nature of their previous employment. About four months later the clients approached us to defend them in a law suit claiming damages in excess of $200,000 for breach of the non-compete clause of the employment contract. A simple review by the lawyer would have helped avoid that situation by informing the clients of their risk."

New business owners may be caught in web of legal debacles if not properly advised, which is why it is important to consult a lawyer before embarking on a new business venture. The biggest problem is expense; as much as we would all love to have a lawyer in our corner, many of us, especially new business owners, believe that it is out of the range of costs. To this Mr. Grinhaus has the following response: "People come to lawyers as a type of insurance, to protect them from risk and liability which can be very costly. The services we offer at Himelfarb Proszanski go beyond just serving and billing. We think of ourselves as your ‘in-house’ counsel. If there is an issue that comes up that I can help resolve quickly in a phone call, or if you are having a business issue which may or may not be legal in nature, I don’t start the clock for every conversation, and am happy to consult with you at no charge. Once we agree on the work that must be done, I will tell you what it costs. If you grow, we want to be there by your side."

Keeping this in mind it is also important to note that, as a business expense, your legal bills can be tax deductible, so better safe than sorry. 
 
Aaron Grinhaus is an associate practicing in the area of business law. Aaron's practice focuses primarily on corporate and commercial law with an emphasis on corporate organization and restructuring, commercial agreements, advice on building a business, and advising on corporate matters including fraud and shareholder disputes. He also practices in the areas of Trust law, Real Estate and Wills and Estates law.

You can visit his website at www.grinhaus.ca and also, his firm's website at www.himprolaw.com. He can be contacted via email at agrinhaus@himprolaw.com.