BREAKING AWAY Gracefully

THE BALTIMORE SUN

Feeling unappreciated? Convinced that you can do a better job than your boss?

Going into business for yourself can bring greater freedom and rewards.

Take Allan Charles, who left the W. B. Doner advertising agency because his boss wouldn't give him a $1,500 raise. He went on to help found Trahan Burden and Charles. "We were pretty young and dumb," he recalled. However, being his own boss allowed him to try new ideas, and he said he retains a good relationship with W. B. Doner.

But, starting a company that competes with your former boss can create special problems.

New entrepreneurs have the usual headaches of finding the money and taking on additional responsibilities.

Dr. Roger Sanders, who left Johns Hopkins University to create an ultrasound practice, was confronted by such chores as finding an office location and had to take out a home equity loan to pay for office renovations.

Betsy Harmatz, who recently opened an audio recording studio in Towson, found herself answering phones when her receptionist went on maternity leave three weeks early.

But when an entrepreneur competes with a former employer, additional troubles arise.

Friendships can disintegrate quickly. More than 10 years after a group of advertising executives left W. B. Doner and took the agency's largest account, feelings still run high. Doner boycotted the local advertising awards contest in March because one of those former employees is president of the local ad association.

And there's another problem: lawsuits.

When Thomas Jenkins and other employees left S3 Technologies in Columbia for GP International, a competitive firm, they were sued for taking proprietary data.

As employees of S3, they had signed an agreement promising not to reveal trade secrets they learned on the job.

Mr. Jenkins had anticipated that S3 might sue, and contacted a lawyer before leaving the company two years ago. The lawyer helped Mr. Jenkins understand which information was his property and which was the company's.

The suit eventually was dropped.

Such agreements, in which employees promise not to reveal trade secrets or proprietary data, have been common in the defense industry for years. But now advertising agencies, accountants, doctors and biotechnology firms are requiring pre-employment agreements to protect their client base.

The benefit is that agreements protect the firm from employeewho would steal clients. "The drawback is that it turns off the staff," said Joseph E. Pollack, a Pikesville accountant. "It has to be handled in a delicate manner."

Even without written agreements, employees are prohibited by state and federal laws from revealing or using certain information gained from previous employers.

Maryland's trade secrets law prohibits workers from using confidential information learned from an employer. And Maryland companies can be held liable if they know that a new employee has illegally provided them with information.

What's a trade secret?

It's defined as a formula, program, method, technique or process that has independent economic value, that is not generally known and that is subject to some effort to keep it secret. It can include customer lists and even processes or formulas the employee has developed.

Computer programmers, for example, have been found guilty of violating trade secret laws for taking programs that they created for a previous employer.

"They can take the expertise with them, but they can't take the process with them," said Baltimore lawyer James Astrachan, who specializes in trade practices.

Soliciting clients is another sticky issue. With or without agreements, workers are not allowed to compete with their boss while still employed, Mr. Astrachan said. Although employees may make some preparations for establishing a competing business, they may not solicit clients by trying to persuade them to shift their business.

If there's no contract, the employee can walk out on his employer one day and begin calling clients the next.

But increasingly, contracts prevent employees from taking clients. Maryland courts have even held a company liable for hiring someone in violation of a non-compete agreement the employee had with a previous boss.

Such agreements can smooth a corporate breakup by providing legal guidelines.

Simpson Gardyn, for example, signed an agreement when he became a manager athe Grant Thornton accounting firm. When he decided to leave, he was compelled to pay Grant Thornton for two years 50 percent of the fees paid by clients he took with him.

Mr. Gardyn said the agreement is fair. He was able to take a core of clients to his new practice, his clients were able to keep their accountant, and Grant Thornton was compensated for the loss.

He has retained a good relationship with Grant Thornton, he said. "I think I'm the exception to the rule. I lived up to the bargain I had made."

Drawing up such agreements is not easy, Mr. Pollack said. He and partner Craig H. Neuman are considering several versions of employment agreements for new workers. The agreements would penalize employees who leave and take clients whom they had not brought to the firm.

"It's not so simple to draw [agreements] and for them to bacceptable to the employees," Mr. Pollack said. "It's something you have to give a lot of thought to."

Mr. Astrachan, the lawyer, advises employers not to be too restrictive when writing such agreements. Usually such agreements apply only to skilled employees, such as those who have a personal relationship with clients or possess trade secrets.

Agreements shouldn't be more restrictive than necessary to protect the interest of the business. An unduly restrictive agreement might forbid employees from setting up competitive businesses anywhere in a city or for years after leaving a firm.

Employers should not impose agreements on existing employees without giving them something in return, Mr. Astrachan said. Signing agreements may be conditions of employment, raises or promotions, but the courts will not look favorably on the agreements if employees are forced to sign them without receiving some benefit.

Mr. Astrachan advises employees to consult a lawyer before signing the agreements to make sure they are drawn as narrowly as possible.

Such agreements become critical for venture capitalists considering whether to invest in a fledgling company, said Ralph Alterowitz, president of Venture Tech Corp. in Potomac. Sometimes executives of new companies must obtain a release from previous employers before they can attract needed capital.

"One major claim to fame for young entrepreneurs will be that they know the industry, and that they have developed a better way of doing the job," he said.

The only profession which prohibits such agreements, ironically, the legal profession. Courts have decided that clients should be able to obtain any legal counsel they want. Mr. Astrachan, for example, took clients with him when he left Weinberg and Green.

But such agreements are increasingly common in medical practices. Dr. Sanders said he created such an agreement when he took a partner into his ultrasound practice. It prohibits his partner from setting up a competitive practice within two miles of Dr. Sanders' office.

Being his own boss suddenly forced Dr. Sanders to face questions such as employee agreements, office location and office management. Still, he said his decision to start a practice at Cross Keys has been worth the aggravation.

Some of his patients followed him to his new practice, forming a core group from which he could expand.

"It's been very revitalizing," he said. "It's given me a new lease on life."

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