Side Businesses and Non-Compete Clauses: What You Can Do

Many professionals dream of starting a side business—whether to pursue a passion, generate additional income, or build toward an eventual career transition. But if you've signed a non-compete agreement with your employer, you might be uncertain about what you're legally allowed to do. Understanding the scope, enforceability, and limitations of non-compete clauses is essential to pursuing side ventures without violating your employment agreement.

🎯 Key Takeaways

Non-compete enforceability varies dramatically by state—California largely bans them
A side business in a different industry is generally safer
Never use employer resources, time, or confidential information
Review your specific agreement and consult an attorney before launching

What is a Non-Compete Clause?

A non-compete agreement restricts employees from working for competitors or starting competing businesses for a specified period after leaving employment. Employers use non-competes to protect:

- Trade secrets and confidential information - Customer relationships - Proprietary business methods - Competitive advantage

Non-competes vary widely in scope, duration, and geographic reach.

Are Non-Competes Enforceable?

Enforceability depends on state law. Some states (like California) largely ban non-competes. Others enforce them if they're reasonable in scope, duration, and geography.

⚖️ State Non-Compete Enforceability

Approach	What It Means	States
Banned/Very Limited	Non-competes generally unenforceable	California, North Dakota, Oklahoma, Minnesota
Enforced if Reasonable	Courts scrutinize scope, duration, geography	New York, Texas, Florida, most states
Blue Pencil	Courts can modify overly broad terms	Varies by state

Key enforceability factors: - Protecting legitimate business interests (not just preventing competition) - Reasonable time period (typically 6 months to 2 years) - Reasonable geographic scope (limited to relevant markets) - Not overly broad or punitive

Even in states that enforce non-competes, courts scrutinize them and often narrow overly broad provisions.

Understanding Your Agreement

Before starting a side business, carefully review your employment contract:

✅ Employment Agreement Review

☐ Does it include a non-compete clause?
☐ What activities are restricted (competing business, working for competitors, soliciting customers)?
☐ What's the duration and geographic scope?
☐ Does it apply only after you leave, or during employment as well?
☐ Are there exceptions or carve-outs?
☐ What triggers a violation?

Understanding these terms is the first step in assessing what you can legally do.

Non-Compete vs. Non-Solicitation vs. Confidentiality

Employment agreements often include multiple restrictive covenants. Each serves a different purpose:

📋 Types of Restrictive Covenants

Covenant Type	What It Prohibits	Typical Scope
Non-Compete	Working for or starting competing businesses	1-2 years, geographic limit
Non-Solicitation	Soliciting customers or employees	1-2 years, no geography
Confidentiality/NDA	Disclosing proprietary information	Often indefinite

Your agreement might have all three. Analyze each separately to understand your limitations.

Can You Start a Side Business During Employment?

Whether you can operate a side business while still employed depends on:

- Your employment agreement terms - Whether the business competes with your employer - Whether it interferes with your job performance or uses employer resources - Company policies on outside employment or conflicts of interest

⚠️ Important Distinction

Many agreements prohibit competing activities during employment, not just after. Even if your agreement doesn't explicitly prohibit side businesses, conflicts of interest policies might. Check your employee handbook and company policies.

Defining 'Competition'

What constitutes a competing business? This is often the key question.

Competition typically means: - Offering the same or similar products/services to the same customer base - Operating in the same industry and market - Directly competing for customers or business opportunities

If your side business serves a different market, offers different services, or targets different customers, it may not be considered competitive. Document why your side business doesn't compete to support your position if challenged.

Safe vs. Risky Side Businesses

🎯 Side Business Risk Assessment

Risk Level	Business Type	Example
Lower Risk	Entirely different industry	Software engineer opening a bakery
Lower Risk	Monetized hobbies	Marketing exec selling photography
Lower Risk	Passive income	Real estate investments
Medium Risk	Consulting in adjacent area	Requires careful analysis
Higher Risk	Same industry, different market	Consult attorney first
Higher Risk	Targeting employer's customers	Likely violates agreement

The further removed from your employer's business, the less risk of violating your non-compete.

Using Employer Resources

🚨 Never Use Employer Resources for Your Side Business

❌ Don't use company time, equipment, or facilities
❌ Don't use company data, customer lists, or proprietary information
❌ Don't recruit employees or customers during work hours
❌ Don't use company email or communication systems
❌ Don't develop products using employer's trade secrets

Using employer resources can violate your employment agreement, confidentiality obligations, and potentially constitute theft or fraud.

Disclosing Your Side Business

Should you tell your employer about your side business? Considerations:

- Some employment agreements require disclosure of outside business activities - Company policies might mandate approval for side ventures - Transparency can prevent misunderstandings and disputes - Disclosure might trigger scrutiny or employer objections

Evaluate your agreement, company culture, and risk tolerance. When in doubt, consult legal counsel before disclosing.

If Your Non-Compete is Challenged

If your employer claims your side business violates your non-compete:

✅ Immediate Response Checklist

☐ Don't ignore cease-and-desist letters or legal threats
☐ Consult an attorney immediately
☐ Evaluate the enforceability of your non-compete under state law
☐ Assess whether your business actually competes
☐ Gather documentation supporting your position
☐ Consider negotiation or modification of the agreement
☐ Be prepared to defend your position or cease activities if necessary

Early legal intervention can resolve disputes before they escalate.

Negotiating Non-Compete Terms

If you're signing a new employment agreement or starting a business while employed:

- Negotiate narrow non-compete terms that don't prohibit unrelated side businesses - Request carve-outs for specific ventures or industries - Limit duration and geographic scope - Clarify what constitutes competition - Get written approval for specific side activities

💡 Pro Tip

Negotiating on the front end is easier than litigating later. The best time to address non-compete concerns is before you sign the employment agreement.

Protecting Yourself

Best practices for side business compliance:

1. Review your employment agreement and understand restrictions 2. Ensure your side business doesn't compete or use employer resources 3. Document why your business is non-competitive 4. Avoid soliciting employer customers or employees 5. Maintain confidentiality of employer information 6. Consider legal review before launching 7. Keep business and employment activities completely separate

Following these practices minimizes legal risk and protects both your job and your side venture.

Transitioning to Full-Time Entrepreneurship

If your goal is to eventually leave your job and run your business full-time:

- Plan your transition carefully to comply with non-compete terms - Understand when restrictions begin and end - Avoid activities during employment that violate your agreement - Consider waiting out non-compete periods before launching competing ventures - Negotiate exit terms or releases if possible

A clean transition protects you from litigation and preserves professional relationships.

Schedule a consultation and we'll review your employment agreement, assess your side business plans, and help you navigate non-compete restrictions legally and strategically.