The Dangers of Moonlighting

18 Comments

I was recently “let go” from my job of three years for violating my employee agreement for allegedy 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.

The idea for “PromoterForce”:http://www.promoterforce.com, a web-based referral marketing system for small professional service firms, was created on my own time, with my own equipment. I did, however, make the mistake of not properly assessing the impact of posting about PromoterForce to my company blog during the workday.

While my lawyers are confident in my position (PromoterForce does not encroach on my ex-employer’s core or future business plans, or use any of their IP), the litgation is a major headache and a threat to my startup. I think other entrepreneurs would benefit from knowing about what happened to me, so they can avoid the experience themselves. Here is my account of the events as they unfolded, Blow-by-Blow.

*Idea Formation:*
I woke up early one morning with a burst of inspiration about a new business idea. Because it was 3:00 AM, I grabbed a pen, wrote down a few notes and went back to bed. The next morning my wife left for a day trip with her parents, and I headed to the beach with my dog, a notepad and a pen. Over a three hour period at the beach I captured the main elements of the idea, upon returning home I registered the domain name: “www.promoterforce.com”:http://www.promoterforce.com

*Research:*
Over the next few weeks I spent a lot of time reviewing the current offerings in the space, and came to the realization that there was indeed a major gap between what was currently available and the product I envisioned creating. PromoterForce’s referral system is a web based application for creating and managing referral campaigns for service businesses, with communication tools for satisfied customers to make referrals to their friends, family, and colleagues via eMail, face-to-face, and SMS. Promoters are rewarded with money to donate to nonprofits.

*Business Plan Competition:*
I wanted to test the validity of the idea so I entered the UC Berkeley Business Plan Competition. I was able to connect with a very talented MBA candidate and we worked together further researching and validating the concept and developing the executive summary and investor pitch.

*Startup Blog:*
I used WordPress software and a lowcost hosting package to create a simple site and a “blog”:http://www.promoterforce.com/blog for the company.

*Partnership:*
I worked with the owner of a very high quality web development shop to create a strategic partnership. They would provide web development services in exchange for equity in the new business.

*Idea Consumes:*
With all this momentum forming around the idea I found myself increasingly distracted and disinterested in playing the politics game at work. I also found myself consumed by the idea. I began dedicating a few hours in the morning before work, and again in the evening after work, to developing my idea and product plan.

*D-Day:*
About five months on, during which time I had spent no more than 1 to 2 hours per week working on PromoterForbce while at my day job, I was called into a meeting by my manager. Within minutes I was told my employment had been terminated. Without any formal warning, my job of three years was gone. I was shocked but upon leaving the office felt a rising sense of joy. It honestly felt as if I had been released from jail.

*Legal Fight:*
Just days after I was fired I receive word from my former employer’s HR manager that the company would be pursuing ownership of the intellectual property related to my new venture under the conditions of my employment contract.

*Finding Help:*
I quickly got in touch with the only lawyers I know and am currently working with them to resolve the matter. Luckily for me, my lawyer is part of a very well-respected Silicon Valley firm and they work with many startups.

*Turning on the PR machine:*
I’ve been blogging about the IP contest, and contacting third-party blogs to generate some buzz. While I have not yet named the company and am seeking to resolve the matter as quickly and quietly as possible, [my lawyers tell me] it is important to leverage all available resources in my defense.

*Lessons Learned:*
*1) Understand the implications of using any resource your employer owns.* Using something as trivial as bandwidth on their network may constitute a violation of your employee agreement. Don’t.

*2) Diligently document the creation of your idea.* Record as many details as possilbe, and then send all your original documents, by email _and_ certified snailmail, to a close friend for safekeeping.

*3) Limit communication to personal devices and email accounts.* Only talk face to face about your idea with colleagues you know well and trust. Don’t discuss it with them over company phones or email. And remember that while many colleagues will want to help you, as soon as word about your project gets out, it will find its way to your managers.

*4) Don’t underestimate the potential vindictiveness of your employer.* While managers and executives may strive to appear supportive and understanding, their primary responsibility is to protect and defend their company. Once your relationship with the company is severed, all good will is out the window. Prepare for this ahead of time.

*5) Don’t be bullied.* Companies don’t want long legal fights, and good CEOs are experts at talking tough. They will set arbitrary deadlines in your negotiations and warn you against engaging in a legal fight, but don’t loose your cool. Most importantly, don’t let them scare you. This is happening because you have developed something they want.

18 Comments

Julius Seizure

This article seems a bit pointless. Why not keep your mouth shut. If the company says they own the IP, just say, “opps, I lost all the source code”.

Besides, someone in Bulgaria just “stole” all my source code and now the company is operating overseas and making money. No, I don’t know who this overseas person is and I am not getting money from that person, want to see my bank statement?

spiven

I would delete the comment first. you already gave many signs of who you might be.
at least delete the business idea so that your boss cannot even have a proof that you have been moonlighting

Sunny

Hi John (johncastel),

It looks as if your boss is a good lady. Your boss is helping you to use her company address and other resources. According to me, there is nothing wrong in offering her a “piece” you “hit it big”. In your place, I would always return the favor. Anyway, good luck for your business as well as to promoterforce.com

johncastel

I have a situation I’m becoming increasingly concerned about. I work for a venture fund where we invest in and start med-tech companies. My boss is very cool, and even said she would support me if I ever decided to start a business of my own.

About a year ago, before I was hired at the company, I developed an idea for an online roommate matching system. 2 weeks ago, me and my partner finally incorporated. I also didn’t want to use my home address and asked my boss if I could use the business address of the office (the company I work for is housed within a center, so the address is not specifically for my company only). So I incorporated with the company’s address.

I also have my company e-mail as my default on my gmail account, so all the emails I have sent out for market research and contact related have come from my business e-mail address. I’m getting really nervous now that if we hit it big they will look for a piece of it.

Do you think I should pay the cash to get the address changed, is it any good doing that now? Any other suggestions or am I screwed?

nickbuick

Any employee capable of conceptualizing and developing a piece of IP worthy of claim should be embraced by an employer – not fired. Surely they’d be an invaluable asset to the company if only they were given the opportunity to flourish rather than being crushed under a mountain of stuffed-shirts and managers.

I loved the software company I worked for. It was such a good company, in fact, that they were inevitably bought out by a consortium of evil investors whose lack of nous was matched only by their greed. A horde of “upper-management” were swiftly recruited and the engine-room staff began to disperse, it became apparent to me that I should devise my own exit strategy.

I started developing my own app and startup, mostly in my own time.

Deciding when to go full-time on your startup is a tough call and one I was struggling with. Fortunately the decision was made for me when, after 3 years of loyal service and a swag of ’employee of the month’ awards, I was served with a supreme court summons and a legal complaint the size of a phone book from the company’s law firm…

Fortunately, as rule 5 correctly states, employers will almost always back away from costly court battles – its all bluff, and in my case, was quite convincing. I stuck to my guns and they eventually went away… Its been 3 years since I started my company I’ve never looked back. As for the evil investors? They’re bankrupt.}

theunknownfounder

It looks like I might be starting a new job in a few weeks…. I’ve been moonlighting for quite a while on an idea. Is there is a “boiler plate” document that I should consider between my new employer and myself that would prevent the new employer from claiming ownership of my intellectual property, especially since I’m coming into the company after conception of my product / business?}

mistone

Kipling, these are valid points, and I agree that an employer has every right to take necessary action when they feel that an employee is wasting time or not performing to the expected standard.

Where I have an issue is when the employer takes it a step further by saying, “not only are we going to let you go without formal warning, but we are also going to try to take the company you are creating.”

Like you said, as an moonlighting entrepreneur it is important to identify for yourself when its time to go and make the move before something much worse can happen.}

kipling

Honesty may be harder day by day, but it is much easier in the long run.}

kipling

Next time, do not take time you have agreed is your employer’s for your own use. Employers think of time as money. Can you imagine any employer thinking, “I will ignore this – after all, he only stole $60 from my pocket every week, for five months”. No, work part time, or take leave, or work four hours longer, rather than cheating on the boss, and risking loss of credibility, respect and reputation.

And, of course, the old advice, recognize when it is time to leave a job you do not like or that is not a good fit, and leave before you ar thrown out!
Good luck with your new venture!}

elad

A few more lessons:

6. Make sure your employer doesn’t know that you’re moonlighting, and that they can’t find out. Blogging about it is a bad idea. Using company email, or even personal email from work (employers can monitor what goes on your computer or through their network) is bad as well.

7. Don’t tell about your doing to people you do not trust absolutely, especially if they’re employed by, or have any connection with your employer.

8. After you quit (of your own choosing because the business is taking shape, and you’re employer doesn’t know anything so you weren’t fired), take a cooling period (e.g. 30 days) before you go public with anything (including blogging, telling people etc.). Your previous employer isn’t stupid – it’s pretty clear that you started working on your thing while working there. If you wait enough time then it’s at least plausible that you only began working on your idea after you quit.

9. Next time, work for nicer people :)}

sallyann

It’s really important to read your employment contract. My original contract stated that the company owned any idea I had whether or not it was developed on company equipment or on company time.

Read the fine print!}

sabat

Depends a lot on what state you are in, and, of course, what you’re willing to sign upon employment. In California, from what a friend in the HR biz tells me, the employee has a boatload of rights, and a company can’t really do much about someone ‘moonlighting’.

As for the “IP” claims: they’d have to prove that, right? Not just that you accessed your site, but that you actually worked on it. I wish them luck.}

rayden

Looks like I’ll have to be real careful myself as I am going through the same thing except that my employer is not aware that I am moonlighting as a founder of an Internet startup. Good info you provided.}

ardorlan

What if anything do you have worry about if you don’t have an employee agreement?}

cwodtke

An amazing amount of your employee agreements are not enforceable, and many actually violate state laws. Every entrepreneur needs a competent lawyer.}

ravneetg

Tips right to the point, Hasan. Thanks for sharing.}

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