Conflict of interest with newly acquired company
Posted by areyoujokinglol@reddit | ExperiencedDevs | View on Reddit | 39 comments
I posted this in LegalAdvice and didn’t get any input so reaching out here. I’m an engineer with about 7 years of experience, mostly frontend but quite a bit of backend as well. Thanks in advance for any help.
TLDR: Company I work for bought another company. It does the same thing as a side company I helped found on nights and weekends.
Hi there. I have to keep this somewhat vague for my own protection, but seeking some conflict of interest advice.
I work for company A full time, W2. I also have a side business, company B. I am a 20% owner, with two cofounders. I started at Company A two years ago, and was brought on as a cofounder in company B a year and a half ago. All three of us cofounders are part time on it, we work on it nights/weekends. It has clients, we're a legit business, etc.
Company A just internally announced the purchase of company C. Unfortunately, company C does literally everything my company B does. It is a borderline carbon copy of it, just with some slightly tweaked features and targeted at a subset of the type of clients we target at Company B.
I am now in direct violation of my employment contract for company A, as best as I can tell by my contract clauses around work/ownership outside of Company A. It's the standard "you may not work for or have ownership in direct competitors or companies in similar industries", and considering B and C are essentially the same exact thing as each other, it's pretty clear.
The way I see it, I have a few options:
1) be transparent, talk to my boss/director and disclose the new conflict of interest. Likely outcome here is having to fully divest from company B if I want to stay employed.
2) Immediately quit (I have savings, but the software industry is in a rough spot now hiring-wise and I don't have enough savings to weather a long job search, and I have a family to support and a mortgage)
3) The sketchy option: Stay quiet about it and either a) continue working for company A and hope they don't find out at some point, or b) quietly interview for a new role at another company, and again hope A doesn't find out afterwards somehow.
My company B is small - it makes money, but not enough yet for any of us founders to be anywhere near fulltime on it. Option 3 is what my selfish side tells me to do, but ethically it's rough and I don't know if I want that hanging over me.
Option 1 would rip my heart out as I love my cofounders, love the work we're doing and the company we're building. But I also know we're a long way from either being acquired, or making enough money for any of us to go fulltime. So the logical route feels like option 1, which sucks immensely.
I do have emails and voicemails out for consults from employment contract lawyers in my area, so I'll be consulting them when one calls me back.
Thanks in advance.
HowTheStoryEnds@reddit
You should consult a lawyer (asap) that has experience in this legal domain for your jurisdiction.
You don't ask your plumber to make you a new app, don't ask programmers for legal advice, you'll get well-meaning possibilities at best.
PragmaticBoredom@reddit
To be fair, OP did say that they contacted multiple lawyers already. It takes time to find someone with availability and get scheduled.
The question was what to do right now, in the time period in between learning about the acquisition and being able to get advice from a lawyer.
This is a situation where you have to imagine yourself flipping a coin in the air. Heads, you divest from the side business startup. Tails, you walk away from the day job. While the coin is in the air, what way do you hope it lands? Have this answer decided ahead of time before forced to make the decision on the spot.
Then, I think you need to raise the issue with your manager to show you've acted responsibly in a reasonable time frame. The longer you wait to disclose, the more opportunity they have to suggest you're operating in bad faith. Put the ball in their court and expect that it will start working through the company's lawyers for a while.
Option #3 must be avoided. Hiding the issue opens the side company up to legal action and gives Company A an opening to make legal claims against the startup. Don't screw your cofounders like this.
areyoujokinglol@reddit (OP)
I would prefer tails. The primary problem there is that the startup does not make enough money for me to support myself through it, and I don't have enough savings/other income to support myself more than about 4-5 months in a job search.
I'm close to pulling the trigger on telling my boss, but was hoping (frivolously) that I'd get a quicker response from one of the lawyers I've reached out to, but I don't have much expectation on that front at the moment.
Careful_Ad_9077@reddit
I was in a similar situation, I quit so the remaining guys made more money. I also told them I could help them out if they got stuck or smt, but that was obviously under the water.
The biggest difference is that i got the job after the company existed, which I know, is a huge difference. I was jumping jobs during the 2k9 crisis.
BertRenolds@reddit
Does your company have a legal department?
TopSwagCode@reddit
I don't really read the part of talking to "real" lawyers. Posting stuff on reddit isn't the same as getting real legal advice. You might be lucky and get some. But you have bigger chance of random dude just sharing his opion
JohnDillermand2@reddit
It's not, but it can certainly help generate a list of questions to ask your lawyer.
areyoujokinglol@reddit (OP)
for sure. I have messages out to lawyers, just haven't heard back yet, and mainly posted here in case anyone had some past experience in something like this. Appreciate the input regardless!
HowTheStoryEnds@reddit
You are throwing possible contract violations, the possibility of future ip disputes with corp A and hints at possible future illegal behaviour in 1 discoverable post already. Please just stop talking if you have a possible legal issue and consult a lawyer.
warthar@reddit
I am not a lawyer, and you 100% need one. There are a series of questions that need to be asked here. Did Company A know about your involvement in Company B before purchasing Company C? If so, you might be okay talking and mentioning your stake and work involving Company B to Company A, with a legal consultant on standby for any issues ready to step in and help "you".
If they are clueless about Company B, do a complete full stop, say nothing, and talk to a legal expert first.
Finally, say nothing, write nothing, and sign nothing without your lawyer reviewing it first. Even if they state "You need to sign this today by 5 pm or you're terminated." Respond and state: "I require my lawyer to review anything that may impact my business." This isn't about you anymore, this is about your company and protecting it.
anhyzer2602@reddit
The clear, most likely answer is you'll need to choose one.
I personally would bias towards what I own... but it's not necessarily a clean cut decision as you outlined. Ask yourself a few questions:
Be honest with yourself and talk to your family about the options. Sometimes opportunities present themselves as a conundrum. Is this such an opportunity or is it too big a risk?
areyoujokinglol@reddit (OP)
I am low on the risk tolerance scale in this area because we're also trying to start a family so I need good insurance and put a high value on stability for my family.
Side job would need to grow ~6x for me to go full time on it based on my ownership %.
I'm not interested in contract work overall, and I've always been a product engineer so my network is not really tuned for that unfortunately. I did have that thought, but don't think it's feasible.
It would overall likely be too much of a risk to go fulltime on the side gig.
anhyzer2602@reddit
Sounds like, short of an agreement with your current employer or finding another job, you probably have your answer. You just don't like it. It's understandable, because it's a garbage hand, but sometimes that's what you're dealt.
BertRenolds@reddit
Timelines might be important here. Has the acquisition gone through yet?
You're doing the right thing about getting a lawyer. If it has NOT gone through yet, this is something I'd tell my boss about. Option 3 might get you sued..
If it HAS gone through, I'd still tell my boss. Your company likely has lawyers that will tell you the answer. Your lawyer is one thing, but you want this documented internally to protect yourself.
You're likely going to be given garden leave during this time.
I suspect you'll need to find a new role or be moved in the company so you have no way to poach customers etc (dumb example, haven't had ☕)
serial_crusher@reddit
Would you be interested in selling Company B to Company A? Would Company A be interested in buying?
Not a lawyer, but there's probably an out given that you were working at Company B before it became a conflict of interest. I'd say talk to your boss and be prepared to jump ship from either company depending on the outcome of that conversation, but keep in mind it might not come to that.
areyoujokinglol@reddit (OP)
unfortunately I doubt it, given that the acquisition does essentially everything my startup does. There's very slight variations, but those come down to features that either company could build in a week. The only other variation is the target demographic, but my startup has overlaps on that demographic as well.
Will likely talk to my boss soon, but hoping to get a callback from a lawyer before I pull the trigger on that just for clarity.
Scarface74@reddit
Unethical thing: sell your new company to your partners before it gets squashed like a bug. I couldn’t bring myself to do this with friends.
After you talk to a lawyer and your partners, see if you all can at least sell your customers to the new company and transition your customers to the new company.
Let’s talk dollars. How much is your side job bringing in? Does it really have a chance to grow big
areyoujokinglol@reddit (OP)
Side job is at $4500 MRR right now from subscriptions, and about ~$80k revenue over the year from other licensing strategies and sales like lifetime licenses. It's small and our growth has been a struggle. So, obviously the logical side of me knows the straight forward path here is disclose and divest. The goal of me and my cofounders was never necessarily to have a multi-million $ business - moreso a business that took little work (eventually) and provided a solid side income for the three of us while we all work full time elsewhere. As far as confidence in the future of it - that's hard to say. I do think it has a lot of potential, but we haven't seen that yet in our growth or outlook.
Scarface74@reddit
So at $134K a year and you having a 20% stake, you’re making $26800 in revenue from your ownership stake.
I’m absolutely 100% sure that if you put that same amount of effort into interview prep for a job, you could make more than that by changing jobs in a year. The juice just isn’t worth the squeeze on your side gig
areyoujokinglol@reddit (OP)
Even though this definitely wasn't the right subreddit for the post and I'm getting shredded for that, your input has made it worth it and was a very valuable perspective for me. Thank you again.
Aggressive_Ad_5454@reddit
A question: Is company A aware of your involvement with your side-hustle company B? If they are already aware of it -- if you have formally disclosed your involvement with company B to them -- the way you address this issue with company A may change. They chose the conflict of interest, not you.
It might be wise to find something, an email maybe, where you told company A about this.
You also, obviously, should disclose to your partners at company B what's going on. As a matter of mutual trust. Sneaky s**t doesn't matter unless one or the other company gets really successful or is sold. Then it matters a lot and can lose fortunes or wreck deals.
You need a lawyer familiar with the jurisdiction where you work to suggest ways to handle this. Should cost you a kilobuck or so to review it. Not cheap, but cheaper than the nightmare alternatives. It's possible the lawyer could be the one representing company B if that's OK with your partners.
Scarface74@reddit
Yes talk to a lawyer. But what is the lawyer going to do? Eventually he still has to talk to the company and the new company has no incentive to give a random employee they don’t know anything about a carve out to an obvious conflict of interest. He isn’t a valued employee to the new company.
I’m not saying that as a slight against the original poster. The new acquiring company doesn’t know anything about him unless he is a “key man”
areyoujokinglol@reddit (OP)
Some context here - the company I work for is doing the acquisition, not getting acquired. They bought a tiny startup doing the same thing as my personal startup.
My day job company is relatively small and I am a key engineer on a key product and the entire C suite knows me personally and knows my level of value and contributions.
Scarface74@reddit
Ahh in that case, my other advice really stands - the juice really isn’t worth the squeeze for your side company.
Designer_Poem9737@reddit
Sell company B to A
christophersonne@reddit
You need real legal advice here, not hearsay.
This is also not the right sub for your question, and your reason for why you post it here does not matter.
Scarface74@reddit
Talk to a lawyer. I’m not saying this is a possibility in a company where your continued “investment” in the company is sweat equity. But the canonical thing to do in these types of situation is keep ownership in the company. But give up any day to day decision making and have your ownership be in something like a blind trust.
I’m completely unemotional about anything related to money. I would give up ownership of a side company that is making a little money to keep a full time job. Then again I’m very biased. I don’t do side work. It’s a strict rule of mine. Anything I can’t afford on my main income I don’t do. How much more money could you be making right now if you weren’t spending time on a side hustle and instead spend the time leveling up to get a job that pays more?
areyoujokinglol@reddit (OP)
Honestly, thank you for this, as much as it pains me to read. This is a good perspective and will actually help me measure my emotions a bit more over the coming days.
Scarface74@reddit
I really hate to be that guy and I had special circumstances that allowed me to avoid it. But the r/cscareerquestion answer is to “grind leetcode and work for FAANG”. I made $65k more by working for BigTech than I madd doing the same thing at a startup.
I did it by “grinding AWS” instead of leetCode. But that is a tiny needle to thread and I didn’t do it with that goal in mind. I don’t work at BigTech anymore.
areyoujokinglol@reddit (OP)
It's a good and realistic mindset and was good for me to hear. I make solid money where I am, but I could certainly been making more, and have been toying with the idea of making the leetcode grind/push to somewhere better for a while, so maybe this is the catalyst for it.
Antares987@reddit
https://caselaw.findlaw.com/court/fl-district-court-of-appeal/1324676.html
This is an interesting case. Ian did not have an non-compete with Tmesys, but he had one against one of the owner's other companies. They sued him. An injunction was issued. It took years to overturn the injunction.
PragmaticBoredom@reddit
You already said you're contacting a lawyer so I won't continue to repeat that advice.
I will add that option #3 is not only sketchy, it's legally perilous to the startup. If you knowingly continue to work for this company without disclosing the conflict of interest, you're opening the door to some easy lawsuits if your employer ever feels threatened by your Company B side business.
areyoujokinglol@reddit (OP)
yeah, option 3 is the selfish sketchy option that I've pretty much thrown out. It's the one I wish was realistic, but I know it isn't unfortunately.
glasses_the_loc@reddit
Divesting your ownership to a holding company, like an LLC, could work, and then you would be hired as a "consultant" "corp-to-corp" "for equity". Think like a consultant.
PragmaticBoredom@reddit
No, this does not avoid anything. OP couldn't be a "consultant" to a competitor either. A shell company does not break the ownership chain.
areyoujokinglol@reddit (OP)
That is also a contract violation as I cannot work for a competing company in any capacity.
Square-Formal-280@reddit
Option 4, keep job, interview for other positions.
0dev0100@reddit
Yeah ... This goes well beyond development conversations and straight into legal ones.
Enjoy the discussions with your legal advisors and superiors.
areyoujokinglol@reddit (OP)
Yeah, I figured - mainly a shot in the dark here to see if anyone had experience with a similar situation. Just waiting on callbacks from lawyers.