Before starting up a new business as a consultant or independent contractor, there are a few considerations that need to be made regarding your legal liability for a claim to be commenced by your current or recent employer(s). Some potential issues are covered below, however, this is not intended to be exhaustive or to constitute specific legal advice. We recommend discussing your legal obligations to your current or former employer(s) with a legal representative.
Intellectual property and confidential information
Starting a business or secondary employment using intellectual property or confidential information of your current or previous employer(s) may result in the employer(s) deciding to take legal action.
It is important to understand what your current or previous employer(s) consider to be their intellectual property and confidential information. For example, photographs taken of a job site/project on an employer supplied mobile phone will likely be the intellectual property of the employer. Your current or former employment contract(s) should provide a definition of what the employer considers to be confidential information or its intellectual property.
Many employment contracts have ‘outside interests’ clauses. These clauses can affect your ability to have any other employment or side business interests while you are employed under the contract. You should read and understand the clause, you may be required to seek written approval from the employer or resign your role to comply with it.
‘Restrictive covenants’ is a phrase which covers a range of clauses in employment contracts that prohibit employees from engaging in certain conduct after their employment has ended.
These are sometimes known as ‘Non-Solicitation’, ‘Non-compete’, ‘Non-poaching’ or ‘Non-dealing’ clauses.
If a former employer believes you are in breach of a restraint clause they may apply for an injunction, which is an order of the Court that compels you not to engage in certain conduct (e.g. beginning in employment, continuing to operate a business). If the employer is successful in court actions you may be liable for a portion of their legal fees, and in certain circumstances, to pay them damages (compensation).
A Court would have to determine whether the restraint is reasonable in the circumstances, however restraints clauses lasting between 3-12 months are common, and in some occasions longer restraint clauses have been upheld
General law obligations
In the absence of specific clauses in your contract or company policy regarding secondary employment or outside interests, it is important to know that there are obligations that may still apply under common law and in equity ‘the general law’ (sometimes called precedent, judge-made law, or case law).
Informed written consent
If you are planning on engaging in second employment or starting a side business in consulting or contracting, it is recommended that you seek informed written consent from your employer.
Some employers will have established policies/procedures and may require you to fill out a standard form, in other cases you may engage directly with an executive level company member (e.g. managing director, Chief Executive Officer).
Contact our Workplace Advice and Support section on 1300 273 762 if you need advice on this issue.
About the author
Adrian Rook is an Industrial officer with Professionals Australia providing support, advice and representation to professional employees working in Science, Technology, Engineering and Mathematics (STEM), both in the private and public sector (Commonwealth and New South Wales). He is a Law graduate skilled in industrial/employment law matters including adverse action, award interpretation, bargaining, employment contracts, disputes, policies and procedures, performance management, unfair dismissal, legislative interpretation and general law rights/obligations. He has an extensive background as a volunteer in the community legal sector, and currently volunteers at Redfern Legal Centre’s International Student Clinic, after having been involved with the clinic through a university-facilitated internship and a Practical Legal Training (PLT) Placement.
This material is intended to provide general information, current at the time of first publication. Its contents do not constitute legal advice and should not be relied upon as such. You should seek advice on particular matters from your own legal or financial advisors.