Starting a Business After Your Non-Compete Expires

Step One: Assess Whether the Non-Compete Is Enforceable

Before your non-compete even expires, your attorney should evaluate whether it was enforceable in the first place. Courts in most states apply a reasonableness test, examining whether the restrictions are reasonable in scope, duration, and geographic reach, and whether they are supported by legitimate business interests. An agreement that is unreasonably broad — for example, a three-year national ban on working in any capacity in a broad industry category — may be unenforceable regardless of its expiration date.

The enforceability landscape has shifted dramatically in recent years. The FTC issued a Final Rule in April 2024 that would have banned virtually all non-competes nationwide — though courts have temporarily enjoined enforcement of that rule, and its ultimate fate remains uncertain. Several states — including California, Minnesota, North Dakota, and Oklahoma — already void non-competes as a matter of state law. Michigan (Mich. Comp. Laws § 445.774a) enforces them but requires a showing of a reasonable competitive business interest and reasonable restrictions.

Preserving Your Customer Relationships Post-Expiration

The expiration of a non-compete does not automatically free you to contact every former client. Non-solicitation agreements — which prohibit soliciting former customers or employees for a specified period — are separate and are often enforced more aggressively because they are more narrowly tailored. Check whether your agreement includes separate non-solicitation provisions that survive the non-compete’s expiration.

Even without a non-solicitation clause, the inevitable disclosure doctrine — recognized in some states — allows a former employer to seek an injunction preventing you from working for a competitor if your new role would inevitably require you to use trade secrets. PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995) is the seminal case. Courts in many jurisdictions have used it to extend effective non-compete protection beyond the agreement’s expiration date.

The Trade Secret Threat: Your Biggest Risk After a Non-Compete

Once a non-compete expires, the primary legal risk is a trade secret misappropriation claim under the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836, or applicable state law (e.g., the Michigan Uniform Trade Secrets Act, MCL § 445.1901 et seq.). A trade secret claim can be asserted regardless of whether your non-compete has expired — as long as the information qualifies as a trade secret and the former employer can show you misappropriated it.

The DTSA defines a trade secret broadly to include all forms and types of financial, business, scientific, technical, economic, or engineering information — including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes — provided the owner has taken reasonable measures to keep the information secret and the information derives independent economic value from not being publicly known.

Practical Steps for a Clean Launch

Conduct a ‘clean room’ review: Before using any information in your new business, have your attorney evaluate whether it constitutes a potential trade secret. When in doubt, rebuild from publicly available sources.
Don’t take documents: Taking any documents — digital or physical — from your former employer before your departure is the most common trigger for litigation.
Document your independent development: Keep dated records of every customer you identify through public channels, every method or formula you develop independently, and every vendor you locate without using proprietary information.
Use public sources: Customer lists compiled from LinkedIn, industry directories, trade publications, or government databases are typically not trade secrets. Document that you used these sources.
Consult with counsel before soliciting former customers: Even after the non-compete expires, the first outreach to a former customer should be reviewed by your attorney.
Prepare a litigation budget: Assume a cease-and-desist letter or TRO motion is a possibility in the first 12 months, and plan your finances accordingly.

Responding to a Cease-and-Desist Letter

Many former employers send a cease-and-desist letter within weeks of learning that a former employee has started a competing business. These letters are often strategically timed to maximize disruption. Do not ignore the letter and do not respond without counsel. A well-crafted response from your attorney — delivered promptly and specifically refuting the allegations — can often deter litigation that would otherwise follow a non-response.

Revision Legal’s trade secret attorneys represent entrepreneurs starting businesses after non-competes, from pre-launch compliance reviews through litigation. Contact us at revisionlegal.com/contact or visit our Business Law practice page.

Trade secret questions are among the legal concerns that should be addressed if you are planning to start a competing business after your non-compete clause expires. Your non-compete clause may have only lasted a year or two, but violations/misappropriations of trade secrets can be alleged at any time, and in some jurisdictions, trade secret claims have statutes of limitations that extend out to five years. So, while the party seeking to prevent competition cannot enforce a non-compete agreement/clause after it has expired, a trade secret claim might have a similar effect. That is, in trade secret litigation, the plaintiff has the option to seek an injunction from the court that temporarily prevents the new, competing business from operating. Even if that does not succeed, any litigation is expensive, and litigation costs might be enough to overwhelm a new business seeking to compete, causing it to fold.

So, what can be done? Here is some background information and a few thoughts on protecting yourself from trade secret claims as you start your competing business after your non-compete expires.

Background

Trade secrets can generally be defined as:

Information or data
That has “commercial value” because
The information/data is “secret” and
Where the owner of the information/data takes “reasonable measures” to keep the information/data secret

This definition is very broad and will include information/data like the contents of a customer or vendor supplier list. The reason is that there is “commercial value” in knowing the identity of consumers and their purchase histories. There is a competitive advantage to having such knowledge. The same is true for sources of goods and materials and other information like processes, techniques, formulas, plans, practices, and more.

Often, a trade secret claim is based on a person taking the alleged trade secrets in a physical manner, like on paper or in an electronic format. Note, however, that a physical taking of an alleged trade secret is NOT necessary. In some cases, it CAN be enough to allege that the trade secrets were “in a person’s head.”

Methods of responding to trade secret claims

From the foregoing definition, there are several methods of competing against a former employer while responding to and avoiding trade secret claims. Generally, you should expect potential trade secret litigation, you should prepare for it financially and emotionally, plan on transparency, and respond to trade secret claims accordingly. There are several steps to take. These include documenting that aspects of your business plan/model are not “secret.” If the data/information/process is known publicly, there is no “secret” for a trade secret claim. If customers and/or vendors are a likely source of a trade secret claim, be sure to document that you located customers/vendors “from the internet” or some other public source of data, likewise with a business method, formula, etc. Be prepared to identify a public source — a report, a public presentation, a patent application, etc. — for those methods, formulas, etc. Why? If a trade secret claim is alleged, you want your trade secret lawyers to respond — in detail — to the claims before litigation is started. Such will also be the basis for your legal defense if trade secret litigation is filed.

Contact The Trade Secret Attorneys At Revision Legal

For more information, contact the experienced Trade Secret Lawyers and Litigators at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.