Do You Think an Employee Is Setting up A Competing Business? Here’s What to Do (2024)

Two Businessmen Arm Wrestling
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As a business owner, you have every right to assume that your employees are committed to helping you achieve success. So, if you find out that a team member is working behind your back to set up a competing business, it’s understandable if you’re, simply put, angry.

After all, they’re turning the opportunity that you provided them against you, their colleagues, and ultimately your business.

In this article, the UK’s best-rated company formation agent, 1st Formations, looks at what you should do if you suspect that an employee is taking steps to set up a competing business.

Let’s jump in.

Control your emotions

Suspecting an Employee
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Anger, disappointment, panic. These are all valid emotions to have in this situation. However, calling the employee in to tell them exactly what you think, certainly in the initial ‘suspicion’ stages of this process, is not going to help resolve the situation.

By all means, confidentially vent your concerns with a trusted individual, inside or outside of your business to alleviate some of the pressure on yourself and get useful insight but keep your network small.

Remember, this could all be a misunderstanding and you might be jumping to conclusions.

Investigate

What triggered your suspicions? Did a client mention a conversation with the employee about their own venture? Have they been using company resources for personal business endeavors? Perhaps they’ve even registered a domain name suspiciously similar to your own.

Gather all available evidence, no matter how seemingly insignificant, and analyze it objectively. Then take a step back and review it as a whole.

Is there a possibility that you’re being paranoid, or are you confident in your conclusion that the individual is working to set up a competing business?

Review all contracts

From a contractual point of view, the employee might not be breaching any agreements. Check over the individual’s contract, employee handbook and any other internal documentation that may have been signed, searching for any restrictive covenants, such as non-compete, garden leave, and non-solicitation clauses.

Essentially, you are looking for anything that states that the employee can’t set up a competing business whilst under your employ (and usually within a set period after leaving your employment).

If this has been included, you have a legitimate case against the employee. However, if your employment documentation does not reference any restrictive covenants, your first course of action should be to update all relevant literature with the necessary clauses, and then get these signed by your employees.

When it comes to the employee in the frame now, whilst your legal position isn’t strong, you should still discuss the matter with them…

Talk to the employee

Talk to the employee
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Now comes the face-to-face conversation. Present your evidence and give the employee a chance to explain their actions. Their response will either confirm your suspicions or offer a different perspective.

If they admit to their venture, assess their seriousness and intentions regarding their continued employment with you. If they deny your claims, carefully evaluate their explanation and your own level of belief.

This is a delicate stage where suspending the employee with full pay while you gather further information and make a final decision might be prudent.

Make that decision

Your talks with the employee will probably have made it clear whether they have a future with your business (you’ve been convinced that they were not setting up a business or they’ve agreed to shelf the idea) or not (they’ve denied the allegations, but you don’t believe them, or they’ve admitted to it and intend to carry on).

If they’re sticking around, you’ll now have to closely monitor the situation from here on and hope that the employee can get back to contributing to your business.

On the other hand, if you intend to dismiss the employee, you’ll need to follow the correct disciplinary procedures, even if their actions could be deemed gross misconduct (for example, work in setting up the business was done whilst they should have been working for you).

Seek legal advice

Legal Advice
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If the employee perseveres in setting up a competing business, and your employment literature states that such activity is not permitted, you may wish to make the matter a legal one.

This is a costly and timely endeavor so put serious consideration into whether or not this is the path you wish to go down. Consulting with legal professionals, HR experts, or business coaches can provide valuable guidance and support throughout the process.

Your decision is likely to be informed by how much damage has already been done by the process, the level of harm a competing business could do to your business, and realistically, just how aggrieved you are with the (probably now ex) employee.

If you do decide to take the legal route, we strongly recommend seeking the advice of a professional.

So, there you have it

That’s what to do if you suspect that an employee is setting up a competing business.

Regardless of what stage of the business journey you are on, if you have a solid idea, there will often be people who want to use you as a stepping stone.

If you do find yourself in this unfortunate situation, knowing how to handle it professionally will benefit you and your business. We hope this article has demonstrated how to do this.

Beyond the Basic Steps: Proactive Prevention

Boss and Employee Talking
Source: businessinsider.com

While reacting effectively to suspicion is crucial, proactive measures can significantly reduce the risk of employees venturing into competition. Here are some key strategies:

  • Foster Transparency and Open Communication: Encourage employees to openly discuss career aspirations and concerns. This allows for early identification of potential conflicts and opportunities to address them collaboratively.
  • Implement Clear Conflict of Interest Policies: Define what constitutes a conflict of interest and establish a transparent process for employees to disclose potential conflicts. Offer guidance on acceptable side ventures and moonlighting activities.
  • Prioritize Competitive Compensation and Benefits: Regularly review compensation packages and employee satisfaction surveys to ensure employees feel valued and invested in their careers within your company.
  • Invest in Employee Development: Provide opportunities for continuous learning and upskilling to keep employees engaged and challenged within your organization, reducing the allure of external ventures.
  • Conduct Regular Performance Reviews: Use performance reviews as opportunities to discuss career goals and growth opportunities within the company, aligning individual aspirations with organizational needs.