Can an employer use an NDA to claim ownership of side projects built on personal time without company resources?

Can an employer claim ownership of side projects built on personal time?

In most jurisdictions, an employer cannot claim ownership of side projects developed entirely on personal time, using personal resources, and unrelated to the employer’s business. However, if your employment contract contains an overly broad 'Invention Assignment' clause, your employer may legally assert ownership, creating a significant risk to your intellectual property.

Key takeaway: An NDA is typically for confidentiality; the real threat to your side project is the 'Invention Assignment' or 'Proprietary Information' clause found in your employment agreement.

Understanding Invention Assignment Clauses

Most employment contracts include an Invention Assignment clause. These clauses are designed to ensure that anything you create while employed belongs to the company. The legal battleground usually centers on whether the work is 'related' to the employer's business.

The Three-Prong Test for Ownership

To determine if your side project is safe, evaluate it against these three criteria, which are codified in many state laws:

• Time: Was the work performed entirely outside of your working hours?
• Resources: Did you use any company equipment, supplies, facilities, or trade secret information?
• Relevance: Is the project directly related to the employer’s business, or does it result from work you performed for the employer?

Action Item: Audit your current project against these three prongs. If you used a company-issued laptop, you have likely violated the 'Resources' prong, giving the employer a legal foothold.

Jurisdictional Protections: The California Standard

Several states have enacted legislation to protect employees from overreaching employers. California Labor Code Section 2870 is the gold standard. It explicitly states that an employer cannot require an employee to assign rights to an invention developed on their own time without using the employer's resources.

Action Item: Check if your state has a specific 'Employee Invention Act.' If you live in a state without these protections, your contract language is the only law that matters.

Red Flags in Your Employment Contract

When reviewing your contract, look for specific language that signals an attempt to claim your personal work. These phrases are often hidden in the 'Intellectual Property' or 'Proprietary Rights' sections.

• 'All work created during the term of employment': This is dangerously broad and ignores whether the work is related to the company.
• 'Any idea or concept conceived': This attempts to claim your thoughts, not just your output.
• 'Related to the actual or anticipated business': The term 'anticipated' is a loophole that allows companies to claim almost anything by saying they planned to enter that market.

Key takeaway: If your contract says 'all work created during the term of employment' without the 'unrelated to business' carve-out, you are at high risk.

How to Protect Your Intellectual Property

If you are building a side project, you must maintain a strict separation between your professional and personal life. Follow these steps to minimize risk:

1. Use Personal Hardware: Never use a company-issued laptop, tablet, or phone for your side project.
2. Use Personal Accounts: Do not use your work email or cloud storage (e.g., company Google Drive or GitHub Enterprise) for personal code.
3. Document Everything: Keep a log of hours worked on your project to prove it was done outside of company time.
4. Disclose (If Necessary): If your project is in a grey area, consider a formal disclosure to your employer to get a written waiver, though this carries the risk of them saying 'no.'

Action Item: Create a 'clean room' environment for your side project. Use a separate computer and a personal, non-work-linked repository.

Conclusion

Protecting your side projects requires a clear understanding of your contractual obligations and the specific laws in your state. Ambiguous contract language is the primary tool employers use to claim ownership of employee innovations. TermScore can automatically analyze your employment contract to identify high-risk 'Invention Assignment' clauses, helping you understand exactly what rights you may have inadvertently signed away before you start your next big project.