Moonlighting: When Should I Quit My Day Job? | Pillsbury – Propel
A founder’s eureka moment may come at any time, and commonly occurs while employed by another company. Sometimes the kernel of an idea is a result of something the founder encounters in their day job—an ancillary problem that they want to solve, or an issue that arises time and again and for which there is not a useful or practical solution.
Rightfully, founders fear that coming up with an idea for a business while employed is a death knell to the idea. They frequently ask us whether they must quit their job to start the company (or, even worse, whether the idea is dead on arrival because of the mere timing and circumstances of its conception). The only “perfect” answer—at least from a legal risk perspective—is yes. But we are not blind to the impracticality of that advice. The practical reality is that most founders cannot afford to quit immediately upon conceiving an idea. We, therefore, tend to advise a few considerations to mitigate the actual risk related to a founder’s relationship with their employer and the perceived risk that may arise from the perspective of future investors in their new venture.
“Moonlighting,” “side hustling” or any other iteration of the term, primarily implicates two areas of law: intellectual property and employment law. The standard onboarding documents of most employers will require that any intellectual property created by an employee during their employment that relates to the business of the employer belongs to the employer, whether or not created on the employee’s own time or with the employee’s own materials. Intellectual property in this instance is defined broadly and perhaps not intuitively for most founders—it expands beyond trademarks, copyrights and patents to capture things like business plans, customer lists and other “soft” items related to ideation and trade secrets. Employees are also bound by their fiduciary duty of loyalty to their employers, pursuant to which they must act with the utmost good faith in the advancement of their employer’s interests. Another consideration is whether your new business violates any existing covenants not to compete or to solicit other employees, customers or vendors.
What can a would-be founder do, then, when balancing the tension of this legal risk against practical realities? We recommend the following:
- Leave existing employment as early into the idea as practicable;
- Review all employment documents carefully to understand existing obligations to the current employer;
- Grasp how related the new business is to the employer’s existing business—the more remote from the current and prospective business of the employer, the better;
- Do the day job eagerly and earnestly;
- Do not use employer materials, equipment or other resources in the creation of the new venture or in working on the idea;
- Do not work on the new venture during work hours or otherwise allow the new venture to interfere with the successful performance of duties; and
- Keep clear records of work for the existing employer and work on the new venture to prepare to demonstrate separation.
While the above does not resolve the inherent risks—the only solution that would is to leave your job immediately before having even a kernel of an idea—it will help mitigate the risk of future claims and navigate future diligence processes with as little friction as possible.
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