Independent Contractor to Business Owner - Can I carry Accounts over??

[Icyymike]

What is the name of your state (only U.S. law)? Texas

I was a sales rep for a company for the past few years. I filled out my 1099 but never signed a non compete. I am looking to drop out of being a contractor for this company and actually opening up my own start up in the same industry using the accounts I have developed as a starting point.

Since I have not signed a non compete, am I okay to create this new business and do business with accounts that I have with this current company.

Thanks,
Mike

 

[quincy]

What is the name of your state (only U.S. law)? Texas

I was a sales rep for a company for the past few years. I filled out my 1099 but never signed a non compete. I am looking to drop out of being a contractor for this company and actually opening up my own start up in the same industry using the accounts I have developed as a starting point.

Since I have not signed a non compete, am I okay to create this new business and do business with accounts that I have with this current company.

Thanks,
Mike

Whether you can legally create a new business using your former employer's customer accounts depends on several factors.

The lack of a signed non-compete agreement does not preclude your former employer from suing you over various and assorted unfair business practices (tortious interference, breach of fiduciary duty, misappropriation of trade secrets ...).

 

[adjusterjack]

Since I have not signed a non compete, am I okay to create this new business and do business with accounts that I have with this current company.

You're OK until your current company sues you for stealing its customer list.

What would your defense be?

And how much money would you be willing to spend on defending such litigation?

The point is that there is no way to predict what your current company will do and nothing prevents a lawsuit from being served on you and costing you a lot of money to defend.

Money that you can ill afford to spend while you are starting up a new business.

You might want to start building your own list of new customers and see if you can make it that way.

Up to you.

 

[quincy]

The following are links to cases that address some of the problems you could face if you try to start a business using your former employer's customer base.

Hill v. McLane Company, Inc., Texas Court of Appeals, 3d Dist 2011: http://scholar.google.com/scholar_case?case=16698533468103054603&q=McLane+v.+Hill+McKinney&hl=en&as_sdt=4,44

The Court in Hill v. McLane said: "It is well established that even without an enforceable contractual restriction, 'a former employee is precluded from using for his own advantage, and to the detriment of his former employer, confidential information or trade secrets acquired by or imparted to him in the course of his employment."

Wal-Mart Stores, Inc. v. Sturges, 52 SW 3d 711, Texas Supreme Court, 2001: http://scholar.google.com/scholar_case?case=11393266327735938930&q=tortious+interference&hl=en&as_sdt=4,44

The Court in Wal-Mart v Sturges said: "Wrongful Interference occurred if - a. there was a reasonable probability that Plaintiffs would have entered into the contractual relations, and b. Wal-Mart intentionally prevented the contractual relations from occurring with the purpose of harming Plaintiffs."

It is possible to start a business that competes with the business of your former employer. It is even possible to lure some of your former employer's customers away by offering better service. But how you get the customers you get for your new business can legitimately be called into question by your former employer.

I recommend you have all of your business plans, including how you will be acquiring customers for your business, personally reviewed by an attorney in your area, this to best avoid a new-business-ending lawsuit filed against you by your former employer.

 

[justalayman]

Quick and true story;

A guy a know worked at a company. Left and started his own company (competition). He utilized the old company's contact/customer list.



He became quite successful even after he paid well over $1,000,000 in damages to his former employer when he was sued for inappropriately using his former employers customer contact list.

 

[LdiJ]

What is the name of your state (only U.S. law)? Texas

I was a sales rep for a company for the past few years. I filled out my 1099 but never signed a non compete. I am looking to drop out of being a contractor for this company and actually opening up my own start up in the same industry using the accounts I have developed as a starting point.

Since I have not signed a non compete, am I okay to create this new business and do business with accounts that I have with this current company.

Thanks,
Mike

I am going to shift the conversation a little.

In what way would you be competing with the current company you rep for? Are you going to be a sales rep for another company making the same kind of product? Are you going to be manufacturing the same kind of product?

 

[quincy]

Quick and true story;

A guy a know worked at a company. Left and started his own company (competition). He utilized the old company's contact/customer list.



He became quite successful even after he paid well over $1,000,000 in damages to his former employer when he was sued for inappropriately using his former employers customer contact list.

I think that there are probably very few new businesses that can survive a $1,000,000 judgment.

Icyymike, you also have trademark issues to consider. You not only need to choose for your business a trademark (an identifier for your business) that does not infringe on anyone else's trademark, when promoting your business you will need to handle carefully your former employer's trademark (if it is to be handled at all). You should not state or imply anything about your former employer's business that harms its reputation and you should likewise not trade off the other business' reputation when trying to attract customers to your business.

The bottom line is that you really should sit down with a business law professional in your area prior to starting your new company. You want to avoid having your new company socked with a ($1 million or otherwise) judgment as most new companies will have a hard to impossible time recovering from an early lawsuit filed against it. The best way to avoid a lawsuit is to address all of the areas of legal risk prior to startup.

 

[LdiJ]

Well, since the OP hasn't answered my previous post I am going to lay out where I was going with those questions.

John Doe is a 1099 Contractor for XWZ Corp who makes door knobs and related door hardware. He has a client list partial from XWZ Corp and partially developed by him, as a rep for XWZ Corp. Technically John Doe has his own business because he is not an employee.

John Doe decides he can make more money as a rep for multiple manufacturers/distributors and decides to quit working for SWX Corp. He signs up a bathroom fixture company, a cabinet hardware company, a lighting company and a paint company. All of those products would be products that would sell to SWX's customers, but do not compete at all with SWX products. Not only should SWX Corp have no beef with that, but they might even encourage him to keep on as a rep for them as well.

However, you take the same scenario but instead he starts importing door hardware to sell himself to those customers, and the entire situation changes...and gets more into the direction that this thread has gone initially.

 

[quincy]

Well, since the OP hasn't answered my previous post I am going to lay out where I was going with those questions.

John Doe is a 1099 Contractor for XWZ Corp who makes door knobs and related door hardware. He has a client list partial from XWZ Corp and partially developed by him, as a rep for XWZ Corp. Technically John Doe has his own business because he is not an employee.

John Doe decides he can make more money as a rep for multiple manufacturers/distributors and decides to quit working for SWX Corp. He signs up a bathroom fixture company, a cabinet hardware company, a lighting company and a paint company. All of those products would be products that would sell to SWX's customers, but do not compete at all with SWX products. Not only should SWX Corp have no beef with that, but they might even encourage him to keep on as a rep for them as well.

However, you take the same scenario but instead he starts importing door hardware to sell himself to those customers, and the entire situation changes...and gets more into the direction that this thread has gone initially.

Interesting story ... but there is nothing that indicates your conjured scenario has anything to do with what is being asked. Icyymike's question was over customer accounts and the lack of a non-compete agreement with his former employer. The customer accounts are ones he would be taking from his former employer to start his new business.

 

[LdiJ]

Interesting story ... but there is nothing that indicates your conjured scenario has anything to do with what is being asked. Icyymike's question was over customer accounts and the lack of a non-compete agreement with his former employer. The customer accounts are ones he would be taking from his former employer to start his new business.

See, I am interpreting his question differently than you are. In the industries that I am familiar with, the reps call the customers "accounts". So, I am reading that the OP intends to sell to the same customers. Therefore it really matters whether or not he will be selling products that actually "compete". Selling to the same customers is not the same as taking business from his former employer. In fact, even if the products are competing products, the customers in some industries might very well wish to sell both brands.

 

[quincy]

See, I am interpreting his question differently than you are. In the industries that I am familiar with, the reps call the customers "accounts". So, I am reading that the OP intends to sell to the same customers. Therefore it really matters whether or not he will be selling products that actually "compete". Selling to the same customers is not the same as taking business from his former employer. In fact, even if the products are competing products, the customers in some industries might very well wish to sell both brands.

The customer list and the customer accounts belong to the former employer. A non-compete agreement is not necessary to protect the customer list and these accounts from use by former employees looking to start their own business.

It only confuses matters to start talking about fantasy XWZ's and SWX's and doorknobs. That goes far beyond interpreting Icyymike's question "differently." That is inventing a question not asked and providing an answer to the invented question.

 

[Icyymike]

Thank you for all the responses. I would like to clear a few things up.

The customers I would be taking with me would be accounts I developed as new accounts myself. Meaning they were not customers of ours until I came to the company.
Accounts = customers.

Now I wish to leave and create my own start up taking these accounts with me. Again I am a 1099 employee who has not signed any sort of non compete. It is in the advertising industry, meaning I provide promotional products to my customers. These products are available to the entire industry (ASI).

 

[quincy]

Thank you for all the responses. I would like to clear a few things up.

The customers I would be taking with me would be accounts I developed as new accounts myself. Meaning they were not customers of ours until I came to the company.
Accounts = customers.

Now I wish to leave and create my own start up taking these accounts with me. Again I am a 1099 employee who has not signed any sort of non compete. It is in the advertising industry, meaning I provide promotional products to my customers. These products are available to the entire industry (ASI).

To best determine to whom the customer accounts belong (your former employer or you), you should have the facts of your employment personally reviewed by an attorney in your area prior to starting a new business.

It is not so much what you will be providing to customers (doorknobs or promotional products or something else entirely) but rather whether you can legally "take" the customer accounts from your former employer without the former employer having a good and legally supportable reason to file suit against you for unfair business practices.

Once again, the lack of a non-compete agreement does not mean you cannot be sued. It only means you cannot be sued for breach of a non-compete agreement.

 

[Icyymike]

Does being an independent contractor make this any different? Legally I am not an "employee". I am just using them(my current employer) to run my orders that I sell. I will check with an attorney if this comes to fruition but i do not want to waste time if i know i cant use these accounts.

 

[justalayman]

It can make a difference. It will depend on the relationship (contract) you had with the company. Customer lists may be owned by your former employer or it may be deemed they are in fact your customers and you would be free to take them with you when you go. You should have an attorney review your contract you had with your former employer who review the precise facts and give you an opinion.