Dear valued clients and supporters: This month's newsletter will focus on (1) recent developments in the law with regards to the use of LinkedIn by ex-employees and violations of a pre-existing non-compete or non-solicitation agreements and (2) legal considerations for start-up ventures that are raising money.
LinkedIn and Violation of Separation Agreements
It is not uncommon for employers to require an employee to enter into a separation agreement upon termination or resignation of their employment in exchange for a severance payout. The benefit to the employer in entering such an agreement often includes clauses restricting who that employee works for (competitor, etc) and who they can take with them to the new employer (co-workers, clients, etc.), among other benefits. And the reality now is that many employees maintain social media accounts such as LinkedIn that includes professional connections made through their employment, whether it is co-workers or clients/vendors of the employer. The question that has arisen in several jurisdictions is whether an employee who signs such an agreement and then announces that they are leaving the employer on LinkedIn has breached the non-solicitation and non-competition clauses. Courts have found both ways on this issue in different jurisdictions. And the analysis Courts appear to be engaging in when presented with this question is focused on a few factors. First, what was the exact content of the message by the employer on the social media site. Did it encourage defection or competition? Second, what policies did the employer maintain regarding the use or restriction of social media during the course of employment and did the separation agreement specifically make reference to the use of social media with regards to non-solicition and non-compete clauses? Ex-employees subject to such clauses are advised to tailor the message about their departure or future plans on social media sites with this in mind. Employers that have concerns about how their businesses might be impacted as a result of the use of social media by an ex-employee are advised to implement policies restriction the use of social media, while keeping in mind federal labor law protections protecting employees' ability to engage in concerted activity, should they impose such restrictions.
Start-up ventures, raising money and legal obligations
The current state of the capital markets appears to have set the stage for entrepreneurs to start their own businesses. But entrepreneurs are cautioned to take steps to ensure that they are in compliance with all applicable federal and state laws, particularly those that govern the sale of securities. For any transaction in which a business is accepting money as an investment, there are registration requirements and other restrictions imposed by both the Securities Exchange Commission (SEC) and state law. There are even actions that a business owner must take before even offering securities or other equity in exchange for capital, and a failure to comply with federal and state requirements could leave the uninformed entrepreneur inadvertently facing charges as serious as security fraud. Over the course of the next several months, we intend to post a series of articles on our website intended to provide the start-up entrepreneur with some general guidance on issues related to business formation, accepting investment capital at various stages of growth, and ultimately selling the company and distributing the profits, if that should be the desired outcome of the venture. Please see our series of articles here: I, II, and III .