Legal Question in Business Law in California

Re: starting home based business

The basic answer is yes, you can do what you propose; California has a strong policy of encouraging competition and employment mobility. This policy is codified in Business & Professions Code section 16600, which says that contracts restricting anyone from engaging in any lawful business, trade or occupation are void to the extent of the restriction. You also recognize that misappropriation of trade secrets is unlawful, and that customer lists can be trade secrets under certain circumstances, including lack of general public access to the names through directories, etc.

I would go a step further here, and ask you to consider whether as a "coworker with a friend" you two have become partners in a general partnership.

This is important, because if you are a partner, you are rather likely entitled to be bought out when you withdraw from the partnership.

The existence of a partnership is a question of fact; it is not necessary to have an express agreement, either written or oral. Partnerships arise because people in conducting a business behave like partners. The key question is whether two or more people carried on a business activity for profit, with the intention or understanding that the profits would be shared in some manner.

An employee isn't a partner, nor is an independent contractor, because their right to compensation is more or less fixed and not keyed to profit. Did you get paid by the hour, or a salary, or, on the other hand, did you get a slice of the profits or a part of whatever was in the cigar box at the end of the week? Did the friend take out withholding tax and give you a W-2? That would point to employee. A 1099 would point to contractor. In any other case, I'd suspect a partnership in fact.

If you were a partner, Corporations Code sections 16100 to about 16807 - the California version of the Revised Uniform Partnership Act - should be of interest to you, in particular, the provisions numbered 16601 and up dealing with dissociation (withdrawal) of a partner, buyout of the withdrawing partner, and/or windup of the partnership business.

I point this out so that you don't inadvertently and unnecessarily leave a bunch of money on the table when you depart. It's possible (but by no means certain, I hasten to add) that this is a partnership and you are a half owner.

Re: starting home based business

You can start a competing business, but there is nothing you can do to prevent him suing you. Anybody can sue anybody for anything. However, as long as you don't misuse the company's 'confidential data' [if any], you aren't doing anything wrong, so he couldn't win. My general rule is that, if you behave ethically, you won't get into trouble. Despite that, if you get sued or threatened by him, feel free to contact me for legal help.