The Perils of the Side Business

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Today it’s popular to start a side business while being employed somewhere else. My Shanghai-born friend Annie says the Chinese even have a saying for it: “riding in the big boat while carrying the little boat.”

But one entrepreneur tells a horror story of the pitfalls of starting a side business. Hasan Luongo, founder of PromoterForce writes:

I was recently “let go” from my job of three years for violating my employee agreement for allegedly working on a side business and not properly disclosing this to my employer. In addition, I’m now fighting my employer’s claim that because I did some writing on my blog during work hours, my startup’s IP is their property.

Some employers do not care about side businesses, as long as you get your regular work done. A small number of employers even go so far as to actively encourage entrepreneurial side businesses. For instance, big corporations that sell to the small business market value employees with entrepreneurial experience and insights.

But from my experience in the Corporate world, I’d say you are more likely to find employers that discourage or prohibit side businesses. Sometimes it’s an outright prohibition of any side business under the theory that they want your full attention as an employee (even if you claim to work on it during your non-work hours — I’ve seen agreements that attempt to prohibit ALL side businesses, period). Other times they discourage only side businesses that are a conflict of interest — usually that means any business remotely related to your employer’s. These prohibitions often appear in the employee handbook. Or you may be required to sign a “no conflict” or “no moonlighting” agreement.

Another pitfall is an agreement named something like “assignment of intellectual property.” Companies that generate considerable intellectual property (such as technology companies) may require an employee to sign an agreement stating that any invention or intellectual property created while you are employed is owned by the employer. These agreements can be so broadly worded that even if your side business was run 100% on your own time, they may still purport to grant ownership to your employer.

While I am a big believer in starting businesses on the side, Hasan’s experience demonstrates that you first have to know exactly where your employer stands. Make sure your side startup does not violate your employer’s moonlighting policies. Also check on those intellectual property assignments or policies — they, too, can trip you up. The way to be certain is to ask your employer and get written permission to start a side business.

Read all the gory details: The Dangers of Moonlighting: How I risked my IP by founding my startup ‘on the side.’

7 Comments ▼
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Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

7 Reactions

  1. I had no idea this concept existed. Never would I imagine that an employer could lay claim. Once something like this happens, though, I imagine it wouldn’t be wise to underestimate the vindictiveness of the employer. Especially with attorney’s involved. What I do is I usually create a drafted post in the evenings. Save it and then publish it during business hours. Probably a better idea for those in similar situations.

  2. He he he – watch which lawyers you’re complaining about there, Chris! :) Most times there’s a non-lawyer client behind the attorneys demanding something unreasonable.

    Keep in mind that some employer policies and agreements purport to prohibit side businesses even if you do the work on your own time. Hasan made a mistake in working on his business during company time. But some employers don’t want people working on a side business at ANY time.

    Anita

  3. Good point Anita. It’s better to check the rules first than to get burned by them later.

  4. Anita, this is SO important for your audience, especially those just starting out. When you’re picking up just a few projects on the side, it’s easy to dismiss the possible consequences this may have with your day job.

    I think it’s reasonable for employers to have a no conflict policy or prohibit work on side projects during business hours or from company computers, but to demand ownership of everything created by an employee, even if it’s on his/her own time is unreasonable. Better to check these policies in advance.

  5. I think a lot of the reasons why corporations don’t like side businesses is because a lot of people abuse it. What would happen if you ran a software house and your developers were using your highly expensive software development tools, your servers, your time to develop their own software, wouldn’t that be equivalent to stealing?

    Now if you ran a blog or a side business, on your own time, with your own equipment, the worst they could do is fire you. As long as your business does not conflict with your employer’s interests, then the worst they could do is that.

    If you are going to run a side business, the best thing you could do is check your employer’s policy on it, make sure you aren’t using company time/equipment or confidential information, the worst they could do is fire you and pay you severance.

  6. I agree with Mila’s statement. . .”I think it’s reasonable for employers to have a no conflict policy or prohibit work on side projects during business hours or from company computers, but to demand ownership of everything created by an employee, even if it’s on his/her own time is unreasonable.”

    If a policy is in place – fine. But if it isn’t and it’s on your own time – that’s a bit too much. In light of this, however, better to check first!

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