Employees regularly leave their jobs to pursue new opportunities, whether by joining a competitor or starting a competing business. The law generally allows employees to prepare for that transition while still employed, but disputes often arise when preparation moves from simple preparation to conduct that undermines the employer or that the employer views as improperly competitive or harmful.

The distinction between permissible preparation and impermissible competition is often subtle. Misunderstanding that line exposes employees to legal risk, particularly in the weeks leading up to a resignation.

The distinction between preparing to compete and competing

As a general matter, employees are allowed to prepare to compete with their employer while they remain employed. What they are not permitted to do is compete against the employer before their employment ends.

This distinction matters because many disputes turn on timing and intent. Courts focus on whether the employee’s actions merely positioned them for a future opportunity or whether they actively undermined the employer’s business while the employee was still on the payroll.

These issues frequently arise because employees do not fully appreciate how their employer will evaluate their conduct after the resignation. Actions that appeared routine or harmless months earlier likely will be viewed differently once the employer knows the employee was planning to leave. After the resignation, employers often view the employee’s conduct in the time leading to the resignation in the light least favorable to the employee, particularly where competition is involved.

Why preparation is not always straightforward

The rules governing pre-resignation conduct are not intuitive. Every state analyzes the conduct differently, but the outcomes heavily depend on the specific facts and circumstances. Employees may believe they are only planning for the future, while employers may view the same conduct as disloyal or improper.

What complicates matters further is that preparation and competition can overlap. Career moves, business planning, and startup activity frequently occur while an individual is still employed, but when that preparation involves employer information, relationships, or resources, the conduct often becomes improper competition.

What employees are generally permitted to do before leaving

In many circumstances, employees may engage in significant planning before resigning, provided they do so carefully.

Employees may consider new business ideas, research the market, and develop a business plan on their own time. They may rely on their general skills, experience, and industry knowledge, which they are free to use after leaving employment. Planning alone does not constitute competition.

Additionally, employees may form a legal entity, such as an LLC or corporation, seek financing, consult with accountants or attorneys, prepare their resume, interview for alternative positions, or evaluate job offers all generally permissible activities if undertaken before resigning.

Employees may take logistical steps to prepare for a transition, such as securing office space, purchasing equipment, or making arrangements to open a new business. The critical limitation is that these steps should not involve the use of employer confidential information or resources and should not interfere with the employer’s business.

Consulting legal counsel before resigning is often a prudent step. Early guidance can help identify potential risks and structure a transition to minimize exposure.

Conduct that commonly creates legal risk

Most pre-resignation disputes stem from a few recurring categories of conduct:

• Using or retaining employer information, including copying, downloading, emailing, or uploading company files, even when the employee believes the information is not confidential.
• Soliciting customers, clients, vendors, or coworkers before resignation to support a future business or role.
• Using employer time or resources, such as company devices, email accounts, or work hours, to work on a competing venture.
• Taking steps that otherwise undermine the employer’s business, including steering opportunities elsewhere, delaying projects, or positioning a future competitor for advantage.

Courts tend to focus less on the employee’s characterization of these actions and more on their practical effect. Conduct that appears minimal or routine in isolation may take on greater significance when viewed collectively or in the context of an impending departure.

The role of employment agreements and duties

Employment agreements significantly shape what employees can and cannot do before leaving. In practice, confidentiality and NDA provisions often form the core of disputes involving pre-resignation conduct, particularly where employees have access to sensitive business information.

Confidentiality and trade secret obligations are often the most significant source of pre-resignation disputes and typically survive the end of the employment. Non-solicitation provisions may restrict soliciting or even contacting customers or employees, even if competition itself is otherwise permitted.

While non-compete agreements generally apply after employment ends, their existence matters. If an employee takes steps toward a role that would clearly violate a non-compete, an employer may argue that the employee knowingly disregarded contractual obligations.

Even in the absence of a written agreement, employees may still face exposure under trade secret law if their pre-resignation conduct involves the use or retention of protected information. Furthermore, in some states, some employees will owe their employers a fiduciary duty, whether or not there was a signed employment agreement, so taking any of the above described actions may expose the employee to liability for breaching that fiduciary duty.

How courts evaluate preparation to compete

When disputes reach court, judges typically focus on several key factors:

• Timing of conduct: Courts examine what occurred before versus after resignation, often relying on emails, access logs, download histories, and witness testimony to establish a clear timeline.
• Nature of the information involved: Courts distinguish between an employee’s general knowledge and experience as compared to the employer’s information. Even information that does not reach the level of a trade secret can still expose the employee to liability if the information is to undermine or harm the employer while the employee is still employed.
• Intent and patterns of behavior: Isolated or incidental actions are often viewed differently from systematic conduct over time. Courts often infer intent from the surrounding circumstances rather than from direct evidence.
• Actual or potential harm to the employer: Ultimately, courts assess whether the employee’s conduct harmed, or was likely to harm, the employer’s business interests.

Common mistakes employees make

Employees sometimes assume that because they helped create certain materials or information, they may be allowed to take it when they leave. In most cases, however, work product created during employment belong to the employer.

Further, employees frequently underestimate the scope of their post-employment obligations, particularly during the period leading up to resignation, and often wait until after resigning to seek legal advice, at which point the relevant conduct has occurred and may be difficult to mitigate.

At the same time, many underestimate their digital footprint. Sophisticated employers routinely conduct forensic reviews after departures, reconstructing emails, downloads, cloud access, and device usage from the period leading up to resignation to determine whether the now former employee engaged in improper conduct.

Finally, employees may overlook (or might have forgotten about) agreements signed years earlier, or assume those obligations no longer matter or are not enforceable, even though they often play a central role in post-resignation disputes.

Practical considerations before resigning

Employees considering a competitive move should first carefully review their employment agreements to understand their legal obligations before taking any action. Post-employment planning should be kept separate from work activities, with all preparation conducted outside work hours and off employer systems.

Most importantly, seeking advice from a qualified attorney early in the process can help structure a transition that minimizes the risk of a dispute that can quickly become costly and disruptive.

Conclusion

Preparing to compete is lawful, but the margin for error is narrow. The difference between permissible planning and actionable conduct turns on timing, information, and intent. Employees who understand their obligations, respect their employer’s interests, and seek guidance before acting place themselves in the strongest position to transition successfully without inviting unnecessary legal risk.

If your business has questions about employee departures, competitive transitions, or the enforceability of its employment agreements, contact your UBG attorney or Chris Pickett at cpickett@ubglaw.com.

The information provided in this article speaks only to the information and guidance we have available as of the date of publication and is subject to change. This legal update was created by UB Greensfelder LLP and is not intended as a substitute for professional legal advice. Receipt, by itself, does not create an attorney-client relationship. For any questions, or for further information, please contact your UB Greensfelder attorney.