

Ask HN: Could company force departing co-founder to sign non-compete? - iag

Dear HN:<p>I am running into a situation where I am being forced out of the company I co-founded. I have not signed any Non-Compete agreements in the past, and I don&#x27;t want to sign it as it will severely limit my ability to work in the future.<p>The only piece of legal document we have signed so far is a non-binding MoU that states if I want to claim a director seat, I need to sign a non-compete. Since that document was never entered into a formal agreement, and I no longer seek the director seat, I feel no longer obligated to sign away my rights.<p>It&#x27;d be great if someone can give me some advice on this matter before I escalate to the lawyers. I&#x27;m turning to HN for help because I feel this might be a pretty common issue with the audience here.<p>Thanks in advance for your advice!
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davismwfl
I'd ask an attorney to review the MoU and any corporate formation documents.
As well as which state you are in and any obligations you may have if you
remain in an equity position over a certain amount.

Overall though, from what I know and IANAL, you are not obligated to sign any
documents on the way out. However, there could be ramifications like the
forfeiture of your equity (if that was in the original agreement etc). So
that's why I suggest letting an attorney review all the documents. My bet
though is if you didn't have all the standard non-compete etc up front then
they don't exist and you are probably safe to walk away without signing it,
losing the board seat of course.

Good luck.

~~~
iag
The parent company is based out of HK, but the operating company is based in
Philippines.

My co-founder threatened to sue me in the US as I am a US citizen.

Funny enough, if I recall correctly, my home state California has one of the
weakest non-compete law.

~~~
davismwfl
Yea, California is one of the weakest for non-competes from what I understand
too.

I don't think your co-founder really stands much of a chance honestly, except
he/she can hold any money etc that you put into the company. So honestly, it
might be worth an hour of time with a competent attorney to ask a few
questions and make sure you do things to insulate yourself.

That all said, I can't imagine what they would sue you over in this case for
not signing. They are literally on the other side of the world, and unless
your co-founder is just flush with cash and an ass that is willing to tie up
your time in court etc then I doubt this amounts to anything other than hurt
feelings and a shit relationship, at least for a while.

~~~
iag
Really appreciate your comment! Very helpful.

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hwstar
If you live in California, non-competes are not allowed under section 16600 of
the Business and Professions code. They could file a lawsuit, but it would be
thrown out by the California courts. Lawyers have a term for this tactic: "in
terrorem". It is used against persons not familiar with the law.

~~~
fragmede
That's not _entirely_ true.

There are specific cases where non-competes _are_ valid in California,
relating to being the business owner (aka having an equity stake), which OP
has, to some degree.

See Cal. Bus. & Prof. Code §§ 16602.5 or Wikipedia for more.
[http://en.wikipedia.org/wiki/Non-
compete_clause#Exceptions_-...](http://en.wikipedia.org/wiki/Non-
compete_clause#Exceptions_-_valid_non-compete_agreements_in_California)

OP, time to lawyer up.

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noir_lord
No.

They can offer you an incentive to sign one (bag of cash etc) but they can't
make you sign a legal contract.

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josho
In all likelihood you'll be crossing paths with these folks again at some
time. So, be professional.

If you don't like the non-compete because it is too all encompassing then
counter with something more narrow in scope.

However, if you don't like the non-compete because you were forced out and you
have an axe to grind, then own that and separate your personal feelings from
the business. With your newfound clarity re-examine the situation and you may
realize the non-compete isn't a big deal after all. Are you really planning on
starting your own startup to compete directly with them?

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newtronic
Do you want anything from them? Equity, severance, back pay, health care for
18 months (i mean besides cobra). If so, this is your chance to negotiate
something. All the advice about a attorney, i agree with.

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dragonwriter
> Could company force departing co-founder to sign non-compete?

Probably not, though the answer will depend on the law of the specific
jurisdiction that governs your relationship. They could offer something in
exchange for signing a non-compete, but if you haven't previously agreed in a
legal-binding way to a non-compete, and or made a binding agreement pledging
to do so in the future, then even if the conditions apply in which a non-
compete would be valid and enforceable in your jurisdiction, there doesn't
seem any way that they could legally compel you to sign it or legally withhold
anything to which you are already entitled if you do not.

But if you are being forced out of a company you cofounded, you probably
should talk to a lawyer familiar with the law of your jurisdiction about the
whole situation (not just the non-compete aspects.) And if they are attempting
to withhold things that belong to you unless you sign a non-compete, then you
_really_ need to talk to a lawyer, because the issue then becomes "can I
compel them to honor my existing rights, and, if so, how" more than "can they
force me to sign a non-compete".

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gesman
Unless they have other reasons to blackmail you into signing - then not.

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iag
They are withholding my investment into the company, and my equity. They are
also threatening to sue me in the US even though this is a non-US company.

I think they are bluffing, but I just want to double check.

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EpicEng
If they're threatening a lawsuit, it's probably time to get a lawyer.

~~~
gesman
Second that.

You have more stuff going on than the title of your post suggests.

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dman
Talk to a lawyer.

