Restrained of trade 2

[Rheinhardt]

Hi gents,

I need some insight into a contract i have with my previous company in which i was a shareholder.

Some background i started the company a few years ago and took on other shareholders. In this time our relationships broke down within the company and i resigned as a shareholder forfitting my shares in the company. Under our Shareholders agreement we have a restraint of trade. I would like to know my rights in terms of future work. I am from SOuth Africa and did work for a client which is also a friend of mine in Australia. Since the relationships have broken down i have had a request from a Company in Australia to do work for them and then my previous client.

Also if i understand these restraints i may not work in the town where i worked for this company.





--Off all the things i've lost , i miss my mind the most--

 

[Rheinhardt]

I have attached the second document here

--Off all the things i've lost , i miss my mind the most--

 

[TenPenny]

You agreed that, for a period of 24 months after you left, that you would not do work for or solicit work from the clients of that company.

Has 24 months gone by yet? Is the Australian company a client of your former firm?
Have you spoken to a lawyer?

I tend not to ask lawyers for engineering advice, and not to ask engineers for legal advice.

 

[jmw]

I would suggest best of all is to consult a lawyer.

But surely, if you formed the company, then you had a hand in setting up this document and ought to know full well the legal intent and extent? (Hoist with your own petard?)
Of course, you may simply have "borrowed" this format from elsewhere and no one has ever understood the implications.
Plus, what seems fair when you are the one expecting to enforce this on others may seem less than fair when your are the victim.

It seems excessive at 24 months and seems less than clear about what constitutes "business activities". Possibly having a Post Office box will qualify? Or a fully staffed sales office?
There is no apparent limitation that says if you were there first they can't then open and office and put you back on the streets.

Off the cuff, 12.3 seems to include more than just a town, most of the paragraph is pretty redundant because "countries" covers everything.
If they operate in a small town province/area in Moldavia, then they operate in Moldavia the country and that excludes you from anything in Moldavia.
Unless there is something to this separate and separable business.

Most contracts depend on enforcement.
That depends on the ability to enforce and the intent to enforce.

How well or how badly did your parting go?
Would they sacrifice the company to legal fees chasing you round the globe? Or might they just let you get on with life?

How legal is the contract in other jurisdictions?
In its own?
You might even, if you have fiends there still, seek from them a specific exception allowing you to work for this company.

Otherwise, you might have to just sit out the 24 months.





JMW

http://www.ViscoAnalyser.com

 

[IRstuff]

Wow, that's a pretty far reaching document. It also stipulates that you can't even use their suppliers. That seems to be a serious show stopper.

You definitely need to see a lawyer. Otherwise, you might contemplate taking a two year vacation.

TTFN

FAQ731-376
Chinese prisoner wins Nobel Peace Prize

 

[MiketheEngineer]

Don't be asking a bunch of engineers legal questions --------
Go see a lawyer

 

[patprimmer]

As to the legality, get a lawyer.

If it was your company when you started it, I don't quite see how you would want to resign and forfeit your shares unless something very untoward happened. Walking away from a company you started without considerable compensation seems a very extreme act.

Surely you must have agreed to the non compete clause when you signed the contract and must have been aware when you resigned.

It also seems strange that you forfeited rather than sold your shares.

Apart from legalities, if you did agree with and knowingly sign that contract and presumably received some form of compensation, then it would seem you would be quite unethical to breach it.

Regards
Pat
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[msquared48]

Again, get a lawyer.

Nevertheless, to me, this seems like a classic one-sided contract. What are their obligations, or were any ever listed? If there were none, I question the legality of the document. But then, again, I'm not a lawyer.

For the record though, I have seen enforceable Restraint of Trade agreements as long as 10 years.

Even though this could be an enforceable, far reaching, and severely restraining document, there still could be viable legal options. Again, talk to a lawyer.

Mike McCann
MMC Engineering

 

[dik]

I'm not a lawyer, but, I've been involved with a lot of them... enough to know that your document is pretty onorous... I don't know what if all of it is binding... I'm pretty sure that your suppliers could take exception, but, that depends on the jurisdiction. As others have stated, you have to seek a real legal opinion.

I only signed one non-compete agreement and was let go shortly thereafter. There was work in that field that I couldn't 'chase'. I didn't know if I could go for it, but because of the legal threat, I didn't. If I were to sign a non-compete agreement, again, there would be provisions for compensation for the duration of the non-compete time.

my 2c, Dik

 

[patprimmer]

When I signed a non compete it depended on who terminated the employment. It is pretty silly to have an agreement where they terminate and you still can't get another job because you can't compete. It is quite reasonable to have one where if you terminate you can't grab their customers and use their technology and IP against them.

Once again, I am talking about fair and ethical, MOT LEGAL.

Also of course the professional legal advice needs to be relevant to the various jurisdictions that may apply, like at least South Africa and Aus it would seem.

It might depend on where the contract was drawn up and signed and where your current workplace is and where the customers official and/or actual workplace is.

Regards
Pat
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[TenPenny]

The only similar agreement that I ever signed was when I announced I was leaving for a competitor, I had to sign an agreement that I would not use information that was confidential and proprietary to my previous employer, that I would have known due to my work. My lawyer agreed that, quite honestly, that requirement was nothing more than the law would expect anyway.

From what I understand, a non-compete clause that pretty much prevents you from working in your area of competence is usually unenforceable, but again, I'm an engineer.

 

[Rheinhardt]

Hi Gents,

Thank you for all your replies.

Point 1 , I will go see a laywer.

The spesific client that came to me also contacted me privately while i was still with the company. At that point they gave me the option. Join them in a personal capacity or arrange consulting via my previous firm. I chose the latter....

To answer your other questions as to the state of the company. One of the Shareholders that is responsible for contracts and finances added a clause which stipulates that once i shareholder resigns within a period 24 months from the time the contract is signed they would automatically forfeit their shares. We all agreed.

I believed this indevidual also mismanaged our finances by misleading taxatation authoroties ect., we had a fall out and i decided to end all relations with the company and the indeviduals.
I received no compensations as a matter of a fact it was structured in such a way that i did not even receive a salary. But renumiration as a director.

The company in Australie that offered me this work have in the mean time not continued bussiness with my previous company as i was always the person they looked to and they believe that there is nobody in my old company that could provide them with their required skills.

My previous company has resorted to making some of our competitors a propsal to provide them with these resources should they be interested. They were not.

Thanks again for all the replies and i know these guys arent lawyers, but i find engineers explain some things alot better than lawyers do

--Off all the things i've lost , i miss my mind the most--

 

[jmw]

Sounds to me as if the character that inserted this clause had some kind of private agenda or was a complete idiot.
Or both.

Let me assume he not only thought this up but persuaded you all of the virtues of this clause and that no one thought to look at the downsides too closely.

Was it one of those "It's pretty standard to have clauses like this in any company's rules." Maybe no one attached too much importance to the individual clauses? You all wanted to get on with running the company?

Private agenda?
Think Tontine, but without the need for the other partners to die off.

If you look at any company the rules do have to prescribe the terms under which directors and other major investors can leave the company voluntarily or not.
So it is usual to have some sort of clauses inserted to deal with this.
It is also not unusual, even if less common, to have some kind of non-compete clause (What sort of terms are there in the case of Stelios what's-'is-name of Easy Jet who still owns 37% of Easy jet and is talking about setting up a rival airline "Fast Jet").
Even so, separation terms are often very generous. Shares are purchased and usually at terms much more favourable than the average shareholder can expect. There also should be terms about pension funds and the like.

You don't say what separation terms you got but if you simply resigned and that was it, I suspect you have been had.

So what reason could there be for requiring surrender without recompense except to focus the value of the company into the hands of fewer and fewer people? I have to assume you didn't have any money to begin with otherwise you would surely want that back and that is one of the purposes of a share issue. But even if you didn't have to come up with start-up money, whatever work you put in adds value and that should be rewarded.

This kind of contract would appear to do just as well as a Tontine and with a little manipulation could be exploited to the same ends.

If there is a disagreement, some of these people can be expected to think in terms of an outcome that leaves them with fewer people sharing the pot and not in having to finance purchase of shares makes this an easy choice.
That surely must influence the way some of them will think in any disagreement. Hence it may be easier to isolate and manipulate players out of the game one by one.
By the way, are the terms relating to forced dismissal much worse?

It seems from what you say, simply your leaving has already dented their revenue generating ability.
This means that they can't value any work they've lost and you later pick up as being "lost revenue" .

Do see a lawyer but not only question your position re: this clause and the way damages might be assessed (the fact they they are losing more from your leaving the company possibly means that they can't include lost work like this in any damages) but also consider if you have a case for suing for the value of your shares.

It may be that this clause was misrepresented to you, something easier to show maybe if you can also show this character as having been less than above board in other matters (do the tax people know of the problem? Are they still vulnerable?) If nothing else, it gives you a few cards of your own to play.

JMW

http://www.ViscoAnalyser.com

 

[patprimmer]

If the partner was breaking tax laws and you did not want that and could not stop it, so you distanced yorself, at least in Aus, resigning does not necessarily get you off the hook. Neither does voting against it, even if noted in the minutes. If you know a crime has been committed and it in some way involves you, I think you need to report it but once again get good APPROPRIATE JURISDICTION RELATED legal advice. An American or South African lawyer is not where you go for legal advice on what could happen in Aus. If the tax regularities occurred in SA, obviously use an SA lawyer for advice on that aspect.

Regards
Pat
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[dik]

I've always thought that 'contrition is not good for the soul...'

Dik

 

[MacGyverS2000]

The only similar agreement that I ever signed was when I announced I was leaving for a competitor, I had to sign an agreement...

You signed an agreement upon leaving the company? I'd say, if you didn't have me agree to anything when I joined your company, you can't force me to agree to anything as I'm leaving.

Dan - Owner

http://www.Hi-TecDesigns.com

 

[patprimmer]

They may have (probably illegally) used termination pay as a lever.

If so my reaction would have been, well you can explain that in court. Se ya.

Regards
Pat
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[MacGyverS2000]

I've always wondered about the legality of such forms. Nearly every job I've been laid off from (3 of the 4 so far), in exchange for a larger severance package, I signed a form saying I wouldn't sue them down the road (but it never put any limitations on what I could do, other than lawsuits). I never had a reason to sue any of them, so the money for my signature was an easy choice. But I've always wondered if I could refuse to sign and still be entitled to the money...

Dan - Owner

http://www.Hi-TecDesigns.com

 

[TenPenny]

In my case, yes, I signed it upon leaving, only because my lawyer confirmed that it carried no more responsibility than I was legally obligated to anyway, and I did it as a nice gesture to the HR woman, who was a friend, and to pretend that I cared about them.

They knew that in my new position, I was going to be preparing and submitting proposals to bid against jobs that I had prepared and submitted proposals on the week before, for my previous employer. So there was potential for them to claim I was using confidential information, and I didn't want to waste my time arguing with their legal people.

 

[btrueblood]

Regarding signing a non-compete and other legal contracts in exchange for your severance - I too have had this experience. A certain large Aerospace mfgr. now has in their files a set of forms signed by one Mr. "Mickey Mouse". My wife signed her name and added the term "under duress" next to it.